STRUCTURE REGULATION, PRICE STRUCTURE, CROSS-SUBSIDIZATION AND MARGINAL COST OF PUBLIC FUNDS

Authors: CHANG, MING CHUNG¹; PENG, HSIAO-PING²

Source: The Manchester School, Volume 77, Number 6, December 2009 , pp. 675-698(24)

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Abstract:

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.

Document Type: Research article

DOI: http://dx.doi.org/10.1111/j.1467-9957.2009.02112.x

Affiliations: 1: Graduate Institute of Industrial Economics, National Central University, Taiwan 2: Yu Da College of Business, Taiwan

Publication date: 2009-12-01