Search

A model is presented to illustrate the role of a monopoly in the analysis of the global energy market. The model is based on the assumption that burning fossil fuel leads to greater atmospheric carbon dioxide which then leads to global climate change.

This paper studies the effect of sunk entry-costs on potential competition in a multi-market framework, where potential entrants have different home market profits. Although sunk-entry-costs are supposed to increase entry barriers, the experimental results suggest that firms view entry costs differently depending on their home market profits. It is found that subjects are reluctant to enter, and compete in another market if they are already earning monopoly rents. Subjects instead, collude tacitly and earn monopoly rents in home markets, thereby weakening the effect of potential competition. In contrast, subjects who earn small secure returns in their home markets aggressively enter the contestable market whenever there are scopes for earning net profits. The threat of entry and the effects of potential competition are strong in the latter situation, forcing the monopoly incumbents to lower prices to limit-pricing levels. Keywords: potential competition; contestable markets; sunk cost; limit-pricing; hit-and-run entry; collusion; experiment, 1. Introduction The threats of new entry and competition have the potential to curb monopoly powers of existing incumbents. However, entry in a market is usually costly. A potential entrant [...]

We consider a general model of monopoly price discrimination and characterize the conditions under which price discrimination is and is not profitable. We show that an important condition for profitable price discrimination is that the percentage change in surplus (i.e., consumers' total willingness to pay, less the firm's costs) associated with a product upgrade is increasing in consumers' willingness to pay. We refer to this as an increasing percentage differences condition and relate it to many known results in the marketing, economics, and operations management literatures. Key words: marketing; pricing; segmentation; economics; econometrics; price discrimination; segmented pricing; product line History: Received July 25, 2006; accepted November 10, 2008, by Jagmohan S. Raju, marketing. Published online in Articles in Advance March 23, 2009., 1. Introduction The marketing, economics, and operations management literatures have recognized many ways in which a firm can price discriminate. Examples include product line pricing (e.g., BMW 3 and 5 [...]

Byline: Luca Lambertini (1), Raimondello Orsini (1) Keywords: monopoly; network externality; critical mass; D62; L12 Abstract: We show that Rohlfs's (1974) model is a special case of a spatial monopoly model a la Hotelling (1929) with uniform consumer distribution and quadratic transportation costs, where location is exogenous and the good yields no intrinsic utility. By relaxing these assumptions, we prove that the coordination problem typically thought to affect markets for network goods may not arise in general. Endogenizing location makes it easier for the monopolist to extract consumer surplus but also to cover the entire market. We also show that the main conclusions remain qualitatively unmodified if consumer distribution is triangular. Author Affiliation: (1) Department of Economics, University of Bologna, Strada Maggiore 45, I-40125, Bologna, Italy Article History: Registration Date: 01/01/2003 Received Date: 30/06/2003 Online Date: 08/03/2004 Article note: revised version received September 16, 2003

A duopoly is modeled in which downstream firms acquire inputs through bilateral monopoly relations with upstream input suppliers. A strategic advantage associated with facing a relatively strong upstream firm in bargaining is identified, implying that the firm facing the stronger input supplier has an incentive to relocate toward its rival, while the rival has the opposite incentive.

An economic analysis of Japanese distribution systems by using the successive monopoly model is analyzed. Comparison is done between the Tatene system (TS) with the open price systems (OPS) by using the successive monopoly model, and shows that the actual change from TS is greater than OPS from an economic point of view.

We consider the impact of reputation on the survival of a monopolist selling single units in discrete time periods, whose quality is learned slowly. If the seller learns her own quality at the same rate as customers, a sufficiently bad run of luck could induce her to stop selling. When she knows her quality, a good seller never stops selling though at low reputations a bad seller does with some probability. Furthermore, a seller with positive, though imperfect, information sells for the same number of periods whether her information is private or public. We further consider the robustness of the central result when the seller's opportunities for strategic behaviour are limited.

We introduce firm heterogeneity into the standard monopolistically competitive real business cycle (RBC) model. The fundamental equilibrium path is derived and the time-series properties of aggregate GDP are studied analytically. Although firms' productivities are subject to temporary shocks, the aggregate process displays a surprising novel form of nonlinearity and long memory which had not been built into the model at the outset. This aggregate GDP turns out to have very different properties from log-linear time-series models such as auto-regressive (AR) models and their extensions. It displays very strong persistence, which ends abruptly with a sudden change of tendency, giving its autocorrelation function (ACF) an S-shape. Although persistent, it is mean-reverting, unlike the everlasting memory of unit-root processes. Its volatility is of a greater order of magnitude than that of any of its components, so small micro-shocks can generate large macro fluctuations. It is also characterized by long, asymmetric cycles of random lengths. Increased monopoly power tends to reduce the amplitude and increase the persistence of business cycles. Strikingly, we find that the empirical ACFs constructed from GDP data for the U.K. and the U.S. display this characteristic S-shape.

In the standard two-stage framework of R&D/product market competition, this paper provides a performance comparison between monopoly and the cartelized research joint venture, using two well-known models based on different versions of the R&D spillover process. According to the model with a wider scope of application, monopoly always leads to a higher propensity for R&D and, when R&D costs are low, to the best overall market performance. The results also allow for a comparison between the two underlying models of strategic R&D.

The full use of surplus in monopoly markets is efficient in equilibrium. In a perfectly discriminating monopoly equilibrium (PDM), prices of competitive commodities and household incomes are constant. PDM also affixes individualized nonlinear tariffs for the commodities to increase profits. PDM equilibrium has been found to be inefficient but becomes efficient when the monopoly commodities are expensive.

Evidences for the results on the multidimensional interpretation of the multiproduct monopolist problem studied by Mussa and Rosen (1978) are presented. The findings may also be applied to multidimensional nonlinear pricing studies done by Wilson (1993) and Roberts (1979). Bunching is strong in the multidimensional screening problems which emerges from the disparity betwween participation constraints and second order incentive compatibility conditions. A new technique, the sweeping procedure, is consequently developed, to handle bunching in multidimensional screening problems. The procedure may also be used in the study of collusion under asymmetric information and auctions eith externalities.

An evaluation of the New Keynesian macroeconomic models show that transaction externalities and monopolistic competition are the two key features which give rise to a multiplier. Further testing of the two factors in the New Keynesian model show that the effects of the two factor offset each other and that transaction externality is weak in effecting a multiplier while monopoly power is positive in its effect on a multiplier. Transaction externalities effect a multiplier by inducing positive co-movement of aggregate output and real wages.

The welfare implications of price-cap regulation of multi-product monopolies were investigated. A mathematical model that establishes a price index with fixed weights was utilized to analyze Laspeyres regulation in which the regulator sets the productivity growth factor to take away a firm's expected rents without knowing the actual marginal costs. Results showed that a tight cap coupled with a weak correlation between the weights in the price index and the optimal ones can result in welfare below the unregulated level.

We consider a monopolist who can commit to a price path when selling a good for which individual consumers demand at most one unit. Only if the monopolist can also commit to destroying unpurchased stock and the timing of stock release, can she earn more than a static monopolist. This additional commitment power has empirical relevance for a wide range of goods that we term 'durable services.' The inability to store output facilitates price discrimination by a durable services monopolist by permitting the credible threat of rationing. We detail sufficient conditions for a durable services monopolist to produce more than a static or durable goods monopolist produces.

We present a model of a rent-maximizing union that organizes to increase its coverage of an industry and analyze monopoly and 'efficient' unions in this setting. Our model is unique in that we allow for a competitive industry with free entry and find union and nonunion firms coexisting with product market equilibrium. This is achieved by incorporating the insight that firms are heterogeneous in productive characteristics. An important implication of our model is that an 'efficient' union that covers a nontrivial share of the market is not efficient and may in fact be less efficient than a monopoly union. (Reprinted by permission of the publisher.)

Downstream companies can use a convex cost function to force upstream firms to lower input prices. This can be attributed to the downstream firm's capability in using wasteful technology to maximize earnings from infra-marginal units. However, the firm must face inelastic demand and must have a fixed proportion technology. The incentive for vertical control will continue if downstream marginal costs increase.

The advertising and pricing behavior of monopolists is examined in the context of a situation where prices are discovered through costly price searches. In this situation, monopolists are shown to select between two choices: conducting large-scale advertising and having no advertising at all. These choices are demonstrated to provide the most optimal returns for monopolists in markets characterized by downwardly rigid prices. It is also shown that flexibility can be attained in such markets via couponing as this permits discrimination between identical customers.

The Chain Store Paradox, as proposed by Selten and elaborated on by Kreps and Wilson, is discussed. It describes the existence of a situation of perfect equilibrium that results when the monopolist remains complacent to the entry of new competitors. This hypothetical equilibrium situation, however, is contrary to a result that would be obtained intuitively and from the standpoint of rational economic thinking.

Some economists have built a stagnationist model of monopoly capitalism and identified Michal Kalecki as a principal reference for their work. However, the Kaleckian model shows profit share tendencies that are not reflected in Kalecki's writings. The model also allows investment to be a function of output level, which contradicts Kalecki's theory where government cannot easily change output to control investment. Thus, Kalecki must not be considered a starting point for the monopoly capital model.

A principal-agent setting is examined wherein a profit maximizing monopolistic insurer offers insurance to two types of risk averse agents. In this environment, the uninsured position has the same distribution across types, preferences are private information, and distribution of types is idependent and identical. It is found that the insurer can extract nearly all surplus when selling full insurance to two types of risk averse agents if there is no lower bound on liability and if the types view heavy losses very differenty.

We examine a monopoly facing an uncertain demand and maximizing profits over a two-period horizon. Conditions are developed under which the firm will find it optimal to 'experiment,' or adjust initial prices or quantities away from their myopically optimal level in order to increase the informativeness of observed market outcomes and hence increase future profits. We establish conditions under which experimentation will lead a quantity-setting firm to increase or decrease quantity. Finally, we develop conditions under which experimenting firms will choose to be either price-setters or quantity-setters.

The sequential availability of many units of capacity results in the breakdown of the common theories about monopolies. The theories are not as valid because the cost of the deterrence of entry at later phases is affected by the deterrence of entry at earlier phases. A model of a monopoly is developed in which there are several potential market entrants and a few small competitors. The model illustrates the dissipation of monopoly power.

A model of the use of optimal pricing by a monopoly airline is presented. The airline must deal with constraints on capacity during the period of peak demand, which means that the airline must create demand in the off-peak period instead of the peak period before it can expand output. The model shows that the airline can maximize its profits from ticket sales by implementing a policy that requires customers to purchase tickets in advance to receive a discount.

A production model which treats price and production as ex-ante variables as proposed by Karlin and Carr is analyzed to derive a determinate output volume effect given conditions of constant price elasticity of certainty demand and a uniform probability distribution. Simulation techniques are used to extend the impact of demand uncertainty on ouptut and price. The study supports Karlin and Carr's proposal that optimal price is higher than certainty price when demand is not price-elastic.

Intertemporal price discrimination is explained from consumer rationing. If some consumers who have a low valuation for a good are served first at low prices, high valuation consumers buy at a high price although they rationally foresee future price drops. Price discrimination then yields more profits to a monopolist than a uniform pricing strategy.

This paper analyzes a model of a dynamic monopolist who produces at constant unit cost. Each period a new cohort of consumers enters the market. Each entering cohort is identical. Consumers within a cohort have different tastes for the good. My main results are: If players are sufficiently patient, any positive average profit less than the maximum feasible level can be attained in a subgame-perfect equilibrium; in the subset of subgame-perfect equilibria in which players use stationary strategies, the seller cannot make sales at prices significantly greater than the lowest willingness to pay when period length goes to zero; and the seller attains the maximum profit when commitment is feasible by charging the same (static monopoly) price in every period. KEYWORDS: Dynamic monopoly, repeated games, folk theorems, durable goods, Coase conjecture.

LONG-RUN EQUILIBRIUM IN THE EMPIRICAL STUDY OF MONOPOLY AND COMPETITION I. INTRODUCTION One of the central propositions of economic theory, formulated by (among others) Hirshleifer [1976, 319] and Malinvaud [1972, [...]

The nonlinear pricing problem faced by a multiproduct monopolist operating in a market in the presence of agents with budget constraints was investigated. The existence of an optimal, individually rational and incentive compatible selling mechanism for multiproduct monopolists was also examined. Empirical evidence indicates that an optimal, individually rational and incentive compatible selling mechanism arises if other goods are available and if the multiproduct monopolist's goods are not essential relative to other goods.