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Monopoly, Pareto and Ramsey mark-ups

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  • Ten Raa, T.

    (Tilburg University, School of Economics and Management)

Abstract

Monopoly prices are too high. It is a price level problem, in the sense that the relative mark-ups have Ramsey optimal proportions, at least for independent constant elasticity demands. I show that this feature of monopoly prices breaks down the moment one demand is replaced by the textbook linear demand or, even within the constant elasticity framework, dependence is introduced. The analysis provides a single Generalized Inverse Elasticity Rule for the problems of monopoly, Pareto and Ramsey.
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Suggested Citation

  • Ten Raa, T., 2009. "Monopoly, Pareto and Ramsey mark-ups," Other publications TiSEM 5ecf2e07-7d37-4510-8a86-0, Tilburg University, School of Economics and Management.
    • Handle: RePEc:tiu:tiutis:5ecf2e07-7d37-4510-8a86-0d7980cde669
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    File URL: https://pure.uvt.nl/ws/portalfiles/portal/997159/Monopoly.pdf
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    References listed on IDEAS

    as
    1. William J. Baumol & Dietrich Fischer & Thijs ten Raa, 1979. "The Price-Iso Return Locus and Rational Rate Regulation," Bell Journal of Economics, The RAND Corporation, vol. 10(2), pages 648-658, Autumn.
    2. Mohring, Herbert, 1970. "The Peak Load Problem with Increasing Returns and Pricing Constraints," American Economic Review, American Economic Association, vol. 60(4), pages 693-705, September.
    3. Baumol, William J & Bradford, David F, 1970. "Optimal Departures from Marginal Cost Pricing," American Economic Review, American Economic Association, vol. 60(3), pages 265-283, June.
    4. Cuthbertson, Keith & Dobbs, Ian M, 1996. "A Robust Methodology for Ramsey Pricing with an Application to UK Postal Services," Journal of Industrial Economics, Wiley Blackwell, vol. 44(3), pages 229-247, September.
    5. Ingo Vogelsang & Jorg Finsinger, 1979. "A Regulatory Adjustment Process for Optimal Pricing by Multiproduct Monopoly Firms," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 157-171, Spring.
    6. Felix Höffler, 2006. "Monopoly Prices versus Ramsey-Boiteux Prices: Are they “Similar”, and: Does it Matter?," Journal of Industry, Competition and Trade, Springer, vol. 6(1), pages 27-43, March.
    7. Baumol, William J & Bailey, Elizabeth E & Willig, Robert D, 1977. "Weak Invisible Hand Theorems on the Sustainability of Multiproduct Natural Monopoly," American Economic Review, American Economic Association, vol. 67(3), pages 350-365, June.
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    More about this item

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • D60 - Microeconomics - - Welfare Economics - - - General
    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General

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