Fuly Distributed Cost Pricing, Ramsey Pricing, and Shapley Value Pricing: A Simulated Welfare Analysis for the Telephone Exchange

Fuly Distributed Cost Pricing, Ramsey Pricing, and Shapley Value Pricing: A Simulated Welfare... Economic theory has long been concerned with determining the optimal pricing scheme for a multiproduct monopoly, but it has been quite difficult to make use of developments in practice. Using LECOM, the Local Exchange Cost Optimization Model, over three stylized city maps, and assuming price elasticity values taken from the literature for four standard outputs of the local exchange, we demonstrate how fully distributed cost prices, Ramsey-optimal prices, Shapley prices, and standalone prices can be computed for a variety of baseline output levels. Analysis of consumer surplus changes relative to the marginal cost baseline shows that while Ramsey pricing maximizes social welfare over the set of schemes considered, only the Shapley approach results in subsidy-free prices. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Industrial Organization Springer Journals

Fuly Distributed Cost Pricing, Ramsey Pricing, and Shapley Value Pricing: A Simulated Welfare Analysis for the Telephone Exchange

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Publisher
Springer Journals
Copyright
Copyright © 1997 by Kluwer Academic Publishers
Subject
Economics; Industrial Organization; Microeconomics
ISSN
0889-938X
eISSN
1573-7160
D.O.I.
10.1023/A:1007733206595
Publisher site
See Article on Publisher Site

Abstract

Economic theory has long been concerned with determining the optimal pricing scheme for a multiproduct monopoly, but it has been quite difficult to make use of developments in practice. Using LECOM, the Local Exchange Cost Optimization Model, over three stylized city maps, and assuming price elasticity values taken from the literature for four standard outputs of the local exchange, we demonstrate how fully distributed cost prices, Ramsey-optimal prices, Shapley prices, and standalone prices can be computed for a variety of baseline output levels. Analysis of consumer surplus changes relative to the marginal cost baseline shows that while Ramsey pricing maximizes social welfare over the set of schemes considered, only the Shapley approach results in subsidy-free prices.

Journal

Review of Industrial OrganizationSpringer Journals

Published: Sep 29, 2004

References

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