Multiproduct Pricing Made Simple

Mark Armstrong and John Vickers

MPRA Paper from University Library of Munich, Germany

Abstract: We study pricing by multiproduct firms in the context 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 present a tractable class of demand systems that involve a generalized form of homothetic preferences. As well as standard homothetic preferences, this class includes linear and logit demand. Within the class, profit-maximizing quantities are proportional to efficient quantities. We discuss cost-passthrough, including cases where optimal prices do not depend on other products' costs. Finally, we discuss optimal monopoly regulation when the firm has private information about its vector of marginal costs, and show that if the probability distribution over costs satisfies an independence property, then optimal regulation leaves relative price decisions to the firm.

Keywords: Multiproduct pricing; homothetic preferences; Cournot oligopoly; monopoly regulation; Ramsey pricing; cost passthrough; multidimensional screening (search for similar items in EconPapers)
JEL-codes: D42 D43 D82 L12 L13 L51 (search for similar items in EconPapers)
Date: 2016-01-08
New Economics Papers: this item is included in nep-bec, nep-com, nep-cta, nep-ind, nep-mic and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Multiproduct Pricing Made Simple (2018)
Working Paper: Multiproduct Pricing Made Simple (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:68717

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