Monopoly, Pareto and Ramsey Mark-ups |
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Authors: | Thijs ten Raa |
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Institution: | (1) Department of Econometrics and Operations Research, Tilburg University, P.O. Box 90153, 5000 LE Tilburg, The Netherlands |
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Abstract: | Monopoly prices are too high. It is a price level problem, in the sense that the relative mark-ups have Ramsey optimal proportions,
at least for independent constant elasticity demands. I show that this feature of monopoly prices breaks down the moment one
demand is replaced by the textbook linear demand or, even within the constant elasticity framework, dependence is introduced.
The analysis provides a single Generalized Inverse Elasticity Rule for the problems of monopoly, Pareto and Ramsey.
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Keywords: | monopoly prices Ramsey prices inverse elasticity rules |
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