Working Paper: CEPR ID: DP11692
Authors: Mark Armstrong; John Vickers
Abstract: We study multiproduct firms in the contexts of unregulated monopoly, regulated monopoly and Cournot oligopoly. Using the concept of consumer surplus as a function of quantities (rather than prices), we present simple formulas for optimal prices and show that Cournot equilibrium exists and corresponds to a Ramsey optimum. We then discuss a tractable class of preferences that involve a generalized form of homotheticity. Profit-maximizing quantities are proportional to efficient quantities. We discuss optimal monopoly regulation when the firm has private information about its cost vector, and find situations where optimal regulation leaves relative price decisions to the firm.
Keywords: multiproduct pricing; homothetic preferences; cournot oligopoly; monopoly regulation; ramsey pricing; cost passthrough; multidimensional screening
JEL Codes: D42; D43; D82; L12; L13; L51
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| multiproduct monopolist's pricing decisions (D42) | consumer surplus (D46) |
| quantities supplied (J20) | consumer surplus (D46) |
| consumer surplus decreases with an increase in the supply of a product (D11) | optimal price is set below marginal cost (D40) |
| Cournot oligopoly (D43) | equilibrium prices correspond to Ramsey optimum (H21) |
| optimal regulation of a multiproduct firm (L21) | market outcomes (P42) |