The Existence of Marginal Cost Pricing Equilibria with Increasing Returns

Paulina Beato

The Quarterly Journal of Economics, 1982, vol. 97, issue 4, 669-688

Abstract: The competitive mechanism fails in economies with nonconvex technologies. Competitive equilibria do not exist in general, and Pareto optima are no longer equilibria. The search for alternative mechanisms in economies with increasing returns was developed and resulted in the principle of marginal cost pricing. Modern economic theory has returned to the foundations of marginal cost pricing theory in a general equilibrium framework. The existence of equilibria with marginal cost pricing in economies with increasing returns and a more general type of nonconvexities is analyzed in this paper. The case of differentiable economies where all production sets are limited by smooth surfaces is developed. The principles of the proof are also extended to the nondifferentiable case.

Date: 1982
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