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Second-Best Pricing and Cooperation, RAND Journal of Economics

Abstract

This article studies pricing for natural monopolies by using a cooperative game of joint production. Outputs are allocated by a price system. We introduce the concept of the second-best core, which is a subset of the set of zero-profit, second-best Pareto-optimal prices. Prices are such that no group of consumers subsidizes the purchase of another group. We consider the relations among the second-best core and sustainability, supportability, and natural monopoly. For specific preferences and technology we demonstrate the existence of the second-best core. We design a market mechanism for franchise allocation, which achieves second-best pricing without price regulation.

Type

Article

Author(s)

Daniel Spulber

Date Published

1986

Citations

Spulber, Daniel. 1986. Second-Best Pricing and Cooperation. RAND Journal of Economics. 17(2): 239-250.

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