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A note on Ramsey pricing and the structure of preferences

Paolo Bertoletti

Journal of Mathematical Economics, 2018, vol. 76, issue C, 45-51

Abstract: We represent quasi-linear preferences by the dual measure of consumer surplus, and investigate demand and the associated optimal pricing. In particular, we discuss substitutability with respect to the outside commodity, deriving a Slutsky-like decomposition of the price effects. We use our results to show that commodities with larger outside substitutability have smaller optimal Lerner indexes, and that Ramsey prices are always proportional to marginal costs only if preferences are fully homothetic.

Keywords: Consumer surplus; Outside substitutability; Ramsey pricing (search for similar items in EconPapers)
Date: 2018
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DOI: 10.1016/j.jmateco.2018.03.001

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Handle: RePEc:eee:mateco:v:76:y:2018:i:c:p:45-51