Polarization & pricing to the rich

Travis Lybbert

Applied Economics Letters, 2007, vol. 14, issue 6, 389-394

Abstract: Income polarization directly affects monopoly pricing and profits when a monopolist cannot segment markets. When income and price elasticity of demand are negatively correlated, increasing income disparity ultimately leads the monopolist to target the rich at the exclusion of the poor. This paper uses a simple model to demonstrate how income polarization, as distinct from income inequality, affects monopoly price and profit in such a situation. Without income polarization, price increases and profit decreases with income disparity when the monopolist targets the rich. With income polarization, price increases sharply and profit increases with income disparity when the monopolist targets the rich. Preliminary evidence suggests that pharmaceutical prices may indeed increase with polarization.

Date: 2007
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Persistent link: https://EconPapers.repec.org/RePEc:taf:apeclt:v:14:y:2007:i:6:p:389-394

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DOI: 10.1080/13504850500461498

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