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Outsourcing with Heterogeneous Firms

  • Arghya Ghosh

    ()

    (School of Economics, The University of New South Wales)

  • Alberto Motta

    ()

    (School of Economics, The University of New South Wales)

We look at imperfectly competitive markets where some consumers might be budget-constrained. We find that the equilibrium price under budget constrained demand (say, pB ) is often higher than the equilibrium price under standard demand (say, pA ). The relationship between pB and pA depends on the elasticity of the standard demand (at pA ), technology, and market structure. Lack of competition and inefficient technology make pB > pA more likely.

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File URL: http://research.economics.unsw.edu.au/RePEc/papers/2011-09.pdf
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Paper provided by School of Economics, The University of New South Wales in its series Discussion Papers with number 2011-09.

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Length: 26 pages
Date of creation: May 2011
Date of revision:
Handle: RePEc:swe:wpaper:2011-09
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  11. Quirmbach, Herman C, 1988. "Comparative Statics for Oligopoly: Demand Shift Effects," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 29(3), pages 451-59, August.
  12. Che, Yeon-Koo & Gale, Ian, 2000. "The Optimal Mechanism for Selling to a Budget-Constrained Buyer," Journal of Economic Theory, Elsevier, vol. 92(2), pages 198-233, June.
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  14. Varian, Hal R, 1985. "Price Discrimination and Social Welfare," American Economic Review, American Economic Association, vol. 75(4), pages 870-75, September.
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