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Welfare‐Maximising Pricing In A Macroeconomic Model With Imperfect Competition And Consumption Externalities

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  • CHI‐TING CHIN
  • CHING‐CHONG LAI
  • MING‐RUEY KAO

Abstract

This paper develops a simple macroeconomic model with imperfect competition and consumption externalities, and uses it to examine whether the marginal cost pricing rule in the partial equilibrium framework can apply to the general equilibrium framework. It is shown that, for welfare to be maximised, average revenue should be set equal to marginal cost if consumption externalities are either absent or positive. However, for welfare to be maximised, average revenue should be set higher than marginal cost in the presence of negative consumption externalities.

Suggested Citation

  • Chi‐Ting Chin & Ching‐Chong Lai & Ming‐Ruey Kao, 2010. "Welfare‐Maximising Pricing In A Macroeconomic Model With Imperfect Competition And Consumption Externalities," Australian Economic Papers, Wiley Blackwell, vol. 49(3), pages 200-208, September.
    • Handle: RePEc:bla:ausecp:v:49:y:2010:i:3:p:200-208
    DOI: 10.1111/j.1467-8454.2010.00396.x
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    1. Tchoffo, Rodrigue & Ngouhouo, Ibrahim & Nkemgha, Guivis, 2020. "Trade Liberalization and Macroeconomic Performance in Cameroon: An Imperfect Competition Approach," MPRA Paper 98558, University Library of Munich, Germany, revised 09 Feb 2020.

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