Journal article
Environmental quality and monopoly pricing
Resource and energy economics, Vol.58, p.101109
11/01/2019
DOI: 10.1016/j.reseneeco.2019.07.003
Abstract
•How do monopoly price and environmental quality interact, with the latter modeled as in Spence(1975).•Unlike the first-best solution, the private solution assigns higher price to higher quality only under log-supermodular demand.•The monopolist may choose a lower price and a lower quality than the social planner.•Under some conditions, the private and first-best solutions coincide.
This paper investigates various aspects of a monopolist's pricing and environmental quality choice, as two simultaneous decisions and with each as a separate decision, the other variable being exogenously fixed. Green quality is modeled as in Spence (1975), and the present analysis builds on his pioneering work. We contrast the private and the first-best socially optimal solutions. While the latter follows the intuitive property of assigning a higher price to higher quality, the former solution does so under a natural condition of log-supermodular demand. This condition is studied in some detail, and related to properties of an underlying utility function. We complete this characterization of optimal pricing by providing a counter-intuitive example where the two-dimensional interaction is such that the monopolist ends up charging a lower optimal price than the social planner, as well as producing a lower quality. Finally, we investigate respective sufficient conditions under which (i) the private and first-best solutions coincide, and (ii) either one is larger than the other.
Details
- Title: Subtitle
- Environmental quality and monopoly pricing
- Creators
- Rabah Amir - Universidad de Los Andes, ChileAdriana Gama - College of MexicoIsabelle Maret - Université de Strasbourg, Université de Lorraine, CNRS, BETA UMR 7522, France
- Resource Type
- Journal article
- Publication Details
- Resource and energy economics, Vol.58, p.101109
- Publisher
- Elsevier B.V
- DOI
- 10.1016/j.reseneeco.2019.07.003
- ISSN
- 0928-7655
- eISSN
- 1873-0221
- Language
- English
- Date published
- 11/01/2019
- Academic Unit
- Economics
- Record Identifier
- 9984380428102771
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