Optimal price regulation in a growth model with monopolistic suppliers of intermediate goods

Evans, L., Quigley, N. and Zhang, J. (2003) Optimal price regulation in a growth model with monopolistic suppliers of intermediate goods. Canadian Journal of Economics/Revue Canadienne d' Economique, 36 2: 463-474. doi:10.1111/1540-5982.t01-1-00009

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Author Evans, L.
Quigley, N.
Zhang, J.
Title Optimal price regulation in a growth model with monopolistic suppliers of intermediate goods
Journal name Canadian Journal of Economics/Revue Canadienne d' Economique   Check publisher's open access policy
ISSN 0008-4085
1540-5982
Publication date 2003
Sub-type Article (original research)
DOI 10.1111/1540-5982.t01-1-00009
Volume 36
Issue 2
Start page 463
End page 474
Total pages 12
Editor M. Poitevin
Place of publication Boston, U.S.A.
Publisher Blackwell
Collection year 2003
Language eng
Subject C1
340209 Public Sector Economics
729901 Technological and organisational innovation
14 Economics
Abstract In this paper we investigate the trade-off faced by regulators who must set a price for an intermediate good somewhere between the marginal cost and the monopoly price. We utilize a growth model with monopolistic suppliers of intermediate goods. Investment in innovation is required to produce a new intermediate good. Marginal cost pricing deters innovation, while monopoly pricing maximizes innovation and economic growth at the cost of some static inefficiency. We demonstrate the existence of a second-best price above the marginal cost but below the monopoly price, which maximizes consumer welfare. Simulation results suggest that substantial reductions in consumption, production, growth, and welfare occur where regulators focus on static efficiency issues by setting prices at or near marginal cost.
Keyword Economics
Innovation
Monopoly
Price determination
Theoretical study
Trade-off
Q-Index Code C1

Document type: Journal Article
Sub-type: Article (original research)
Collections: Excellence in Research Australia (ERA) - Collection
2004 Higher Education Research Data Collection
School of Economics Publications
 
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Created: Wed, 15 Aug 2007, 02:47:58 EST