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Monopoly, Rent-Seeking, and Second Best Theory

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  • Latham, Roger
  • Perivancic, Frances

Abstract

In the context of a simple general equilibrium model in which there is a profit-maximizing monopolist, the authors show that, in general, the introduction of rent-seeking does not restore the first-best pricing rule for the undistorted industry. This result is in direct contrast to that obtained when one assumes that the monopolist follows a full-cost pricing rule with a constant markup ratio. Furthermore, it still holds even if the full-cost pricing rule is profit-maximizing. The authors also investigate the conditions under which the first-best pricing rule is reinstated for the undistorted industry. Copyright 1991 by Kluwer Academic Publishers

Suggested Citation

  • Latham, Roger & Perivancic, Frances, 1991. "Monopoly, Rent-Seeking, and Second Best Theory," Public Choice, Springer, vol. 70(2), pages 225-237, May.
    • Handle: RePEc:kap:pubcho:v:70:y:1991:i:2:p:225-37
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