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STRUCTURE REGULATION, PRICE STRUCTURE, CROSS‐SUBSIDIZATION AND MARGINAL COST OF PUBLIC FUNDS *
Author(s) -
CHANG MING CHUNG,
PENG HSIAOPING
Publication year - 2009
Publication title -
the manchester school
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.361
H-Index - 42
eISSN - 1467-9957
pISSN - 1463-6786
DOI - 10.1111/j.1467-9957.2009.02112.x
Subject(s) - monopoly , oligopoly , economics , microeconomics , subsidy , externality , product (mathematics) , market structure , product differentiation , price discrimination , product market , public good , marginal cost , industrial organization , market economy , incentive , cournot competition , geometry , mathematics
In this paper we study the social desirability of the structure regulation which transforms a single multi‐product monopoly into an oligopoly where the industry produces differentiated complementary goods. In particular, we pay special attention to the cross‐subsidization which will be eliminated by the structure regulation. It is established that if horizontal externalities between the goods are not too strong, then the monopoly has a socially optimal price structure. In contrast, the oligopoly always distorts the price structure. We also demonstrate that the monopoly will cross‐subsidize a product if and only if this product has a relatively low absolute advantage.