Munich Personal RePEc Archive

Multiproduct Pricing Made Simple

Armstrong, Mark and Vickers, John (2016): Multiproduct Pricing Made Simple.

[img]
Preview
PDF
MPRA_paper_68717.pdf

Download (270kB) | Preview

Abstract

We study pricing by multiproduct firms in the context of unregulated monopoly, regulated monopoly and Cournot oligopoly. Using the concept of consumer surplus as a function of quantities (rather than prices), we present simple formulas for optimal prices and show that Cournot equilibrium exists and corresponds to a Ramsey optimum. We then present a tractable class of demand systems that involve a generalized form of homothetic preferences. As well as standard homothetic preferences, this class includes linear and logit demand. Within the class, profit-maximizing quantities are proportional to efficient quantities. We discuss cost-passthrough, including cases where optimal prices do not depend on other products' costs. Finally, we discuss optimal monopoly regulation when the firm has private information about its vector of marginal costs, and show that if the probability distribution over costs satisfies an independence property, then optimal regulation leaves relative price decisions to the firm.

UB_LMU-Logo
MPRA is a RePEc service hosted by
the Munich University Library in Germany.