The Specialness of Zero

Joshua Gans

No 26485, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: A model is provided whereby a monopolist firm chooses to price its product at zero. This outcome is shown to be driven by the assumption of ‘free disposal’ alongside selection markets (where prices impact on a firm’s costs). Free disposal creates a mass point of consumers whose utility from the product is zero. When costs are negative, the paper shows that a zero price equilibrium can emerge. The paper shows that this outcome can be socially optimal and that, while a move from monopoly to competition can result in a negative price equilibrium, this can be welfare reducing. The conclusion is that zero can be a ‘special zone’ with respect to policy analysis such as in antitrust.

JEL-codes: L11 L41 (search for similar items in EconPapers)
Date: 2019-11
New Economics Papers: this item is included in nep-com, nep-ind and nep-mic
Note: IO PR
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Citations: View citations in EconPapers (7)

Published as Joshua S. Gans, 2022. "The Specialness of Zero," The Journal of Law and Economics, vol 65(1), pages 157-176.

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