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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. W. J. Corlett & D. C. Hague, 1953. "Complementarity and the Excess Burden of Taxation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 21(1), pages 21-30.
    2. Greenhut, M L & Hwang, M J & Ohta, H, 1974. "Price Discrimination by Regulated Motor Carriers: Comment," American Economic Review, American Economic Association, vol. 64(4), pages 780-784, September.
    3. Hansen, Bruce E, 1996. "Inference When a Nuisance Parameter Is Not Identified under the Null Hypothesis," Econometrica, Econometric Society, vol. 64(2), pages 413-430, March.
    4. A.F Alhajji & David Huettner, 2000. "OPEC and World Crude Oil Markets from 1973 to 1994: Cartel, Oligopoly, or Competitive?," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 31-60.
    5. Robert S. Pindyck, 1979. "The Structure of World Energy Demand," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262661772, April.
    6. Keeler, Theodore E. & Hu, Teh-wei & Manning, Willard G. & Sung, Hai-Yen, 2001. "State Tobacco Taxation, Education and Smoking: Controlling for the Effects of Omitted Variables," National Tax Journal, National Tax Association;National Tax Journal, vol. 54(1), pages 83-102, March.
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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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