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Environmental Quality and Monopoly Pricing

Author

Listed:
  • Rabah Amir
  • Isabelle Maret

Abstract

This paper investigates various aspects of a monopolist’s pricing and environmental quality choice, as two simultaneous decisions and with each as a separate decision, the other variable being exogenously fixed. Green quality is modeled as in Spence (1975), and the present analysis builds on his pioneering work. We contrast the private and the first-best socially optimal solutions. While the latter follows the intuitive property of assigning a higher price to higher quality, the former solution does so under a natural condition of log-supermodular demand. This condition is studied in some detail, and related to properties of an underlying utilty function. We complete this characterization of optimal pricing by providing two different counter-intuitive examples where the two-dimensional interaction is such that the monopolist ends up charging a lower optimal price than the social planner, as well as producing a lower quality. Finally, we investigate respective sufficient conditions under which (i) the private and first-best solutions coincide, and (ii) the two-dimensional problem reduces to a one-dimensional problem where the firm picks a single quality-price ratio.

Suggested Citation

  • Rabah Amir & Isabelle Maret, 2018. "Environmental Quality and Monopoly Pricing," Working Papers of BETA 2018-31, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    • Handle: RePEc:ulp:sbbeta:2018-31
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    2. Andrea Podhorsky, 2020. "Environmental certification programs: How does information provision compare with taxation?," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 22(6), pages 1772-1800, December.
    3. Sanxi Li & Xinyu Li & Zhan Qu, 2023. "Does vertical integration increase product quality?," Economic Theory Bulletin, Springer;Society for the Advancement of Economic Theory (SAET), vol. 11(1), pages 69-80, April.
    4. Gaumont, Damien & Badra, Yassine & Kamburova, Detelina, 2023. "Market-dependent preferences, positive and negative network effects and welfare," Mathematical Social Sciences, Elsevier, vol. 123(C), pages 143-154.
    5. Hussain, Jafar & Lee, Chien-Chiang & Chen, Yongxiu, 2022. "Optimal green technology investment and emission reduction in emissions generating companies under the support of green bond and subsidy," Technological Forecasting and Social Change, Elsevier, vol. 183(C).
    6. Christos Constantatos & Christos Pargianas & Eftichios S. Sartzetakis, 2021. "Green consumers and environmental policy," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 23(1), pages 105-140, February.
    7. Ornella Tarola & Cecilia Vergari, 2024. "Endogenous subsidies for cleaner products: The role of ecofriendly consumers," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 26(2), February.

    More about this item

    Keywords

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    JEL classification:

    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General
    • L00 - Industrial Organization - - General - - - General
    • D60 - Microeconomics - - Welfare Economics - - - General

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