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WELFARE‐MAXIMISING PRICING IN A MACROECONOMIC MODEL WITH IMPERFECT COMPETITION AND CONSUMPTION EXTERNALITIES
Author(s) -
CHIN CHITING,
LAI CHINGCHONG,
KAO MINGRUEY
Publication year - 2010
Publication title -
australian economic papers
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.351
H-Index - 15
eISSN - 1467-8454
pISSN - 0004-900X
DOI - 10.1111/j.1467-8454.2010.00396.x
Subject(s) - economics , imperfect competition , externality , microeconomics , consumption (sociology) , marginal cost , welfare , revenue , general equilibrium theory , competition (biology) , partial equilibrium , imperfect , marginal utility , econometrics , ecology , social science , linguistics , philosophy , accounting , sociology , market economy , biology
This paper develops a simple macroeconomic model with imperfect competition and consumption externalities, and uses it to examine whether the marginal cost pricing rule in the partial equilibrium framework can apply to the general equilibrium framework. It is shown that, for welfare to be maximised, average revenue should be set equal to marginal cost if consumption externalities are either absent or positive. However, for welfare to be maximised, average revenue should be set higher than marginal cost in the presence of negative consumption externalities.