A Tale of Two Monopolies

Yi-Chun Chen and Zhengqing Gui

Papers from arXiv.org

Abstract: We apply marginal analysis \`a la Bulow and Roberts (1989) to characterize the revenue-maximizing selling mechanism for a multiproduct monopoly. Specifically, we derive the revenue change due to a price perturbation on any subset of bundles holding the prices of other bundles fixed. In an optimal mechanism, total revenue must not increase with any small price change for bundles with positive demand, nor with a small price decrease for bundles with zero demand. For any symmetric two-dimensional type distribution satisfying mild regularity conditions, the marginal analysis fully characterizes the optimal mechanism, whether the buyer's valuations are additive or exhibit complementarity or substitutability. For general type distributions, the analysis identifies which bundles must carry positive or zero demand and provides conditions under which randomization is necessary.

Date: 2025-06
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