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A note on Ramsey pricing and the structure of preferences

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  • Bertoletti, Paolo

Abstract

We represent quasi-linear preferences by the dual measure of consumer surplus, and investigate demand and the associated optimal pricing. In particular, we discuss substitutability with respect to the outside commodity, deriving a Slutsky-like decomposition of the price effects. We use our results to show that commodities with larger outside substitutability have smaller optimal Lerner indexes, and that Ramsey prices are always proportional to marginal costs only if preferences are fully homothetic.

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  • Bertoletti, Paolo, 2018. "A note on Ramsey pricing and the structure of preferences," Journal of Mathematical Economics, Elsevier, vol. 76(C), pages 45-51.
    • Handle: RePEc:eee:mateco:v:76:y:2018:i:c:p:45-51
    DOI: 10.1016/j.jmateco.2018.03.001
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    References listed on IDEAS

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    1. Fuss, Melvyn & McFadden, Daniel, 1978. "Production Economics: A Dual Approach to Theory and Applications (II): Applications of the Theory of Production," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, volume 2, number fuss1978a.
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    7. Bertoletti, Paolo & Fumagalli, Eileen & Poletti, Clara, 2017. "Price-cost margins and firm size under monopolistic competition: The case of IES preferences," Research in Economics, Elsevier, vol. 71(4), pages 653-662.
    8. Angus Deaton, 1979. "The Distance Function in Consumer Behaviour with Applications to Index Numbers and Optimal Taxation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 46(3), pages 391-405.
    9. Fuss, Melvyn & McFadden, Daniel (ed.), 1978. "Production Economics: A Dual Approach to Theory and Applications," Elsevier Monographs, Elsevier, edition 1, number 9780444850133.
    10. Lau, Lawrence J., 1969. "Duality and the structure of utility functions," Journal of Economic Theory, Elsevier, vol. 1(4), pages 374-396, December.
    11. Lau, Lawrence J., 1978. "Applications of Profit Functions," Histoy of Economic Thought Chapters, in: Fuss, Melvyn & McFadden, Daniel (ed.),Production Economics: A Dual Approach to Theory and Applications, volume 1, chapter 3, McMaster University Archive for the History of Economic Thought.
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    13. Paolo Bertoletti, 2005. "Elasticities of Substitution and Complementarity: A Synthesis," Journal of Productivity Analysis, Springer, vol. 24(2), pages 183-196, October.
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    Cited by:

    1. Paolo Bertoletti, 2024. "Ramsey pricing: a simple example of a subordinate commodity," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 23(2), pages 241-247, May.
    2. Yongsheng Ju & Yongyan Sun & Wenqin Ning & Qingguo Li & Yiya Lin & Hao Chen & Shuxia Yang, 2024. "Cost Apportionment Method for Transmission and Distribution Projects Based on Multiple Apportionment Factors," Sustainability, MDPI, vol. 16(20), pages 1-17, October.
    3. Paolo Bertoletti & Federico Etro, 2024. "Insufficient Entry in Monopolistic Competition," Working Papers 543, University of Milano-Bicocca, Department of Economics.

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