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Sustainability in a multiproduct and multiple agent contestable market

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  • Iehlé, Vincent

Abstract

We prove that a natural monopoly can set subsidy free pricing and sustainable pricing schedules in general economic environment. The setting is a multiproduct and multiple agent contestable market where demands are elastic and where rivals can enter the sub-markets composed by a set of the products line and a set of agents. Our results suggest that the existence results of the extant literature admit analogues even in an environment where rivals have enlarged possibilities to enter the market and where demands react to prices. The approach makes use of cooperative games to deduce the main results under conditions of fair sharing cost, threshold in the consumption and regularity of the profit function.

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  • Iehlé, Vincent, 2008. "Sustainability in a multiproduct and multiple agent contestable market," MPRA Paper 13013, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:13013
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    References listed on IDEAS

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    1. Spulber, Daniel F., 1984. "Scale economies and existence of sustainable monopoly prices," Journal of Economic Theory, Elsevier, vol. 34(1), pages 149-163, October.
    2. Faulhaber, Gerald R, 1975. "Cross-Subsidization: Pricing in Public Enterprises," American Economic Review, American Economic Association, vol. 65(5), pages 966-977, December.
    3. Perry, Motty, 1984. "Sustainable positive profit multiple-price strategies in contestable markets," Journal of Economic Theory, Elsevier, vol. 32(2), pages 246-265, April.
    4. Thijs ten Raa, 1984. "Resolution of Conjectures on the Sustainability of Natural Monopoly," RAND Journal of Economics, The RAND Corporation, vol. 15(1), pages 135-141, Spring.
    5. ten Raa, Thijs, 1983. "Supportability and anonymous equity," Journal of Economic Theory, Elsevier, vol. 31(1), pages 176-181, October.
    6. John C. Panzar & Robert D. Willig, 1977. "Free Entry and the Sustainability of Natural Monopoly," Bell Journal of Economics, The RAND Corporation, vol. 8(1), pages 1-22, Spring.
    7. Leonard J. Mirman & Yair Tauman & Israel Zang, 1985. "Supportability, Sustainability, and Subsidy-Free Prices," RAND Journal of Economics, The RAND Corporation, vol. 16(1), pages 114-126, Spring.
    8. Baumol, William J & Bailey, Elizabeth E & Willig, Robert D, 1977. "Weak Invisible Hand Theorems on the Sustainability of Multiproduct Natural Monopoly," American Economic Review, American Economic Association, vol. 67(3), pages 350-365, June.
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    More about this item

    Keywords

    cooperative game; existence result; natural monopoly; subsidy free pricing; sustainability;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies

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