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A Monopolist Can Never Price in the Inelastic Range of a Demand Curve or Can It?1

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  • C. W. Yang
  • C. B. Hawley
  • B. N. Huang
  • M. J. Hwang

Abstract

In this paper, we expand the double price elasticity theory developed by Greenhut, Hwang, and Ohta (1974) by including a general cost condition for a profit-maximizing monopolist, cartel, or price leader. Our model generalizes the conventional second-order condition as it incorporates the non-converging price elasticity. Contrary to the textbook prediction, a structural changes or an income effect in tobacco, crude oil and other demand inelastic markets can render the price elasticity of demand to oscillate for a long time but never reach its theoretical limit even in a very long time.

Suggested Citation

  • C. W. Yang & C. B. Hawley & B. N. Huang & M. J. Hwang, 2011. "A Monopolist Can Never Price in the Inelastic Range of a Demand Curve or Can It?1," The American Economist, Sage Publications, vol. 56(2), pages 108-117, November.
    • Handle: RePEc:sae:amerec:v:56:y:2011:i:2:p:108-117
    DOI: 10.1177/056943451105600213
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    References listed on IDEAS

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    1. Baltagi, Badi H & Griffin, James M, 2001. "The Econometrics of Rational Addiction: The Case of Cigarettes," Journal of Business & Economic Statistics, American Statistical Association, vol. 19(4), pages 449-454, October.
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    Cited by:

    1. Chin W. Yang & Hui Wen Cheng & Ching Wen Chi & Bwo-Nung Huang, 2016. "A Tax Can Increase Profit of a Monopolist or a Monopoly-like Firm: A Fiction or Distinct Possibility?," Hacienda Pública Española / Review of Public Economics, IEF, vol. 216(1), pages 39-60, March.

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