Decentralized Pricing in Natural Monopolies

  • William A. HamlenJr.
  • Susan S. Hamlen
Part of the Topics in Regulatory Economics and Policy book series (TREP, volume 3)


In this chapter we present the case for and examine the possibilities of using decentralized pricing schemes in the situation of natural monopoly (decreasing marginal and average costs). To some extent, we will be offering an alternative view to that recently espoused by William Baumol in his new book, Superfairness (1986). Baumol finds little to recommend in pricing schemes based on “full cost allocation” (FAC) methods. These methods have been considered extensively in the accounting literature and are commonly used in all types of firms. However, as an economist, Baumol regards them as clearly second or third best in respect to the primary goals of natural monopoly firms which are to either maximize profits (unregulated) or maximize social welfare subject to a profit constraint (regulated).


Consumer Surplus Average Cost Grand Coalition Cost Allocation Marginal Cost Price 
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Copyright information

© Kluwer Academic Publishers 1989

Authors and Affiliations

  • William A. HamlenJr.
  • Susan S. Hamlen

There are no affiliations available

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