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Ramsey pricing: a simple example of a subordinate commodity

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  • Paolo Bertoletti

    (University of Milan-Bicocca)

Abstract

We present preferences exhibiting a so-called subordinate good, namely a commodity such that the willingness to pay for it increases when the consumption of all goods increases proportionally, and thus receives a negative price-cost margin according to Ramsey pricing. We also show that its Bertrand equilibrium price is above its Cournotian price.

Suggested Citation

  • 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.
    • Handle: RePEc:spr:portec:v:23:y:2024:i:2:d:10.1007_s10258-023-00238-1
    DOI: 10.1007/s10258-023-00238-1
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    References listed on IDEAS

    as
    1. Mark Armstrong & John Vickers, 2018. "Multiproduct Pricing Made Simple," Journal of Political Economy, University of Chicago Press, vol. 126(4), pages 1444-1471.
    2. Brown,Stephen J. & Sibley,David Sumner, 1986. "The Theory of Public Utility Pricing," Cambridge Books, Cambridge University Press, number 9780521314008, November.
    3. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, December.
    4. Bertoletti, Paolo, 2018. "A note on Ramsey pricing and the structure of preferences," Journal of Mathematical Economics, Elsevier, vol. 76(C), pages 45-51.
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    More about this item

    Keywords

    Subordinate commodity; Negative price-cost margin; Ramsey pricing; Bertrand vs Cournot prices;
    All these keywords.

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis

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