DP11692 Multiproduct Pricing Made Simple

Author(s): Mark Armstrong, John Vickers
Publication Date: December 2016
Keyword(s): cost passthrough, Cournot oligopoly, homothetic preferences, monopoly regulation, multidimensional screening, Multiproduct pricing, Ramsey pricing
JEL(s): D42, D43, D82, L12, L13, L51
Programme Areas: Industrial Organization
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=11692

We study multiproduct firms in the contexts of unregulated monopoly, regulated monopoly and Cournot oligopoly. Using the concept of consumer surplus as a function of quantities (rather than prices), we present simple formulas for optimal prices and show that Cournot equilibrium exists and corresponds to a Ramsey optimum. We then discuss a tractable class of preferences that involve a generalized form of homotheticity. Profit-maximizing quantities are proportional to efficient quantities. We discuss optimal monopoly regulation when the firm has private information about its cost vector, and find situations where optimal regulation leaves relative price decisions to the firm.