Complexity, Efficiency, and Fairness of Multi-Product Monopoly Pricing

Eugenio Miravete (), Katja Seim and Jeff Thurk

No 9641, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: The Pennsylvania Liquor Control Board administers the purchase and sale of wine and spirits across the state and is legally mandated to charge a uniform 30% markup on all products. We use an estimated discrete choice model of demand for spirits, together with information on wholesale prices, to assess the welfare and redistribution implications of the chosen uniform markup rule. We find that it reduces welfare significantly, but mimics the optimal behavior of a multi-product monopolist. Relative to product-specific prices, the uniform prices do not exploit the observed heterogeneity of consumption across products and demographic groups reflected in relative spirit demand elasticities. They implicitly tax high-income and educated households by overpricing their favored spirit varieties. Our estimated returns to very sophisticated pricing strategies are small indicating the use of more complex pricing mechanisms as being neither socially desirable nor privately profitable.

Keywords: Complex pricing; Multi-product price discrimination; Taxation by regulation (search for similar items in EconPapers)
JEL-codes: L12 L21 L32 (search for similar items in EconPapers)
Date: 2013-09
New Economics Papers: this item is included in nep-com and nep-ind
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Citations: View citations in EconPapers (7)

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Working Paper: Complexity, Efficiency, and Fairness of Multi-Product Monopoly Pricing (2014)
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