On the Foundation of Monopoly in Bilateral Exchange

Francesca Busetto, Giulio Codognato, Sayantan Ghosal and Damiano Turchet

Working Papers from Business School - Economics, University of Glasgow

Abstract: We address the problem of monopoly in general equilibrium in a mixed version of a monopolistic two-commodity exchange economy where the monopolist, represented as an atom, is endowed with one commodity and "small traders," represented by an atomless part, are endowed only with the other. We provide a theoretical foundation of the monopoly solution in this bilateral framework through a formalization of an explicit trading process inspired by Pareto (1896) for an exchange economy with a finite number of commodities. Then, we provide a game theoretical foundation of our monopoly solution through a two-stage reformulation of our model. This allows us to prove that the set of the allocations corresponding to a monopoly equilibrium and the set of the allocations corresponding to a subgame perfect equilibrium of the two-stage game coincide. Finally, we give the conditions under which our monopoly solution coincides with that defined by Kats (1974) and those, more restrictive, under which it has the geometric characterization proposed by Schydlowsky and Siamwalla (1966). Moreover, we establish the formal relationships between our concept of a monopoly equilibrium and that proposed by Pareto (1896), by redefining the latter in terms of our bilateral exchange setting.

JEL-codes: D42 D51 (search for similar items in EconPapers)
Date: 2021-03
New Economics Papers: this item is included in nep-gth
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Journal Article: On the foundation of monopoly in bilateral exchange (2023)
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