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Unbundling Production with Decreasing Average Costs

Author

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  • Carbonell-Nicolau Oriol

    (Department of Economics, Rutgers University, 75 Hamilton Street, New Brunswick, NJ 08901, USA)

Abstract

This paper argues that, even in the presence of decreasing average costs of production, monopolies can sometimes be avoided in the interest of market efficiency. It is shown that under certain conditions on the variable cost of production, there is an alternate, viable market structure that reduces the well-known deadweight loss of monopoly: an “upstream” market in which one or more firms own and share the fixed cost of creating and maintaining a distribution network, and a “downstream” market populated by a large number of firms that are charged a unit price for the network’s usage.

Suggested Citation

  • Carbonell-Nicolau Oriol, 2020. "Unbundling Production with Decreasing Average Costs," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 20(1), pages 1-7, January.
    • Handle: RePEc:bpj:bejtec:v:20:y:2020:i:1:p:7:n:2
    DOI: 10.1515/bejte-2018-0097
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    More about this item

    Keywords

    natural monopoly; Cournot competition; deadweight loss of monopoly;
    All these keywords.

    JEL classification:

    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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