How Hard Is It to Maximise Profit? Evidence from a 19-th Century Italian State Monopoly

Gianni De Fraja, Carlo Ciccarelli () and Silvia Tiezzi

No 12907, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: In this paper we study the ability of the 19-th century Italian government to choose profit maximising prices for a multiproduct monopolist. We use very detailed historical data on the tobacco consumption in 62 Italian provinces from 1871 to 1888 to estimate a differentiated product demand system. The demand conditions and the legal environment of the period made this market as close to a textbook monopoly as is practically possible. The government's stated aim for this industry was profit maximisation: since at the time tobacco revenues constituted between 10 and 15 percent of the revenues for the cash-strapped government, the stated aim was very likely the true one. Cost data for the nine products suggest that the government was not wide off the mark: the tobacco prices were ``not far'' from those dictated by the standard monopoly formulae for profit maximisation with interdependent demand functions.

Keywords: Demand for tobacco; Multiproduct monopoly profit maximisation; 19-th century italy; Qai demand system; Habit formation (search for similar items in EconPapers)
JEL-codes: I18 L12 L66 N33 (search for similar items in EconPapers)
Date: 2018-05
New Economics Papers: this item is included in nep-com, nep-hea, nep-his and nep-ind
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Related works:
Journal Article: How hard is it to maximize profit? Evidence from a 19th-century Italian state monopoly (2021)
Working Paper: How Hard Is It to Maximise Profit? Evidence from a 19-th Century Italian State Monopoly (2018)
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