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Environmental Quality and Monopoly Pricing

Rabah Amir, Adriana Gama () 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 utility function. We complete this characterization of optimal pricing by providing a counter-intuitive example 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) either one is larger than the other.

Keywords: environmental quality; green goods; pricing quality; multi-distortion monopoly pricing; organic food. (search for similar items in EconPapers)
JEL-codes: Q50 L12 D42 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-env
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:ulp:sbbeta:2019-34

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