Environmental Quality and Monopoly Pricing

Rabah Amir () and Isabelle Maret

Working Papers of BETA from Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg

Abstract: This paper investigates various aspects of a monopolist’s pricing and environmental quality choice, as two simultaneous decisions and with each as a separate decision, the other variable being exogenously fixed. Green quality is modeled as in Spence (1975), and the present analysis builds on his pioneering work. We contrast the private and the first-best socially optimal solutions. While the latter follows the intuitive property of assigning a higher price to higher quality, the former solution does so under a natural condition of log-supermodular demand. This condition is studied in some detail, and related to properties of an underlying utilty function. We complete this characterization of optimal pricing by providing two different counter-intuitive examples where the two-dimensional interaction is such that the monopolist ends up charging a lower optimal price than the social planner, as well as producing a lower quality. Finally, we investigate respective sufficient conditions under which (i) the private and first-best solutions coincide, and (ii) the two-dimensional problem reduces to a one-dimensional problem where the firm picks a single quality-price ratio.

Keywords: environmental quality; green goods; green awareness; multi-distortion monopoly pricing. (search for similar items in EconPapers)
JEL-codes: D60 L00 Q50 (search for similar items in EconPapers)
Date: 2018
New Economics Papers: this item is included in nep-env and nep-ind
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http://beta.u-strasbg.fr/WP/2018/2018-31.pdf (application/pdf)

Related works:
Journal Article: Environmental quality and monopoly pricing (2019)
Working Paper: Environmental Quality and Monopoly Pricing (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:ulp:sbbeta:2018-31

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