Multiproduct Cost Passthrough: Edgeworth’s Paradox Revisited

Mark Armstrong and John Vickers

No 967, Economics Series Working Papers from University of Oxford, Department of Economics

Abstract: Edgeworth’s paradox of taxation occurs when an increase in the unit cost of a product causes a multiproduct monopolist to reduce prices. We give simple illustrations of the paradox, we show how it can arise with uniform pricing, and we give an analysis of the case of linear marginal cost and demand conditions. We show how the matrix of cost-passthrough terms must be similar to a positive definite matrix. When the firm supplies two substitute products we show how the paradox always occurs with a suitable choice of cost function. We then show a connection between Ramsey pricing and the paradox in a form relating to consumer surplus, and use it to find further examples where consumer surplus increases with cost.

Date: 2022-03-25
New Economics Papers: this item is included in nep-com, nep-ind, nep-mic and nep-reg
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Citations: View citations in EconPapers (4)

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Related works:
Journal Article: Multiproduct Cost Pass-Through: Edgeworth’s Paradox Revisited (2023)
Working Paper: Multiproduct Cost Passthrough: Edgeworth's Paradox Revisited (2023)
Working Paper: Multiproduct Cost Passthrough: Edgeworth's Paradox Revisited (2022)
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