Multiplant Monopoly in a Spatial Market

Michael Katz ()

Bell Journal of Economics, 1980, vol. 11, issue 2, 519-535

Abstract: This article analyzes the behavior of a multiplant monopolist in a spatial market. After demonstrating that the profit maximizer may establish an excessive or insufficient number of plants, the article derives criteria by which to determine the direction of this distortion. The distortion arises when consumer surplus is a function of the number of plants (holding the level of output fixed) and, consequently, the private and social benefits from changes in plant density diverge. The article also examines monopolist's choice of output level. An example is presented in which the profit maximizer produces more output than would a welfare maximizer.

Date: 1980
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