Advertisement

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)

Abstract

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).

Keywords

Consumer Surplus Average Cost Grand Coalition Cost Allocation Marginal Cost Price 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  1. Baumol, W.J. 1980. “Theory of Equity in Pricing for Resource Conservation.” Journal of Environmental Economics and Management (December): 308–320.Google Scholar
  2. Baumol, W.J. 1982. “Contestable Markets: An Uprising in the Theory of Industry Structure.”American Economic Review 72 (March): 1–15.Google Scholar
  3. Baumol, W.J. 1986. Superfairness. Cambridge, MA: MIT Press.Google Scholar
  4. Baumol, W.J., J.C. Panzar, and R.D. Willig. 1982. Contestable Markets and the Theory of Industry Structure. New York: Harcourt, Brace, Jovanovich.Google Scholar
  5. Bruegelmann, M., G. Haessly, C. Wolfangel, and M. Schiff. 1985. “How Variable Costing is Used in Pricing Decisions.” Management Accounting (April): 58–61.Google Scholar
  6. Hamlen, W. 1982. “The Output Distribution Frontier A Comment and Further Consideration.” American Economic Review (March): 247–255.Google Scholar
  7. Hamlen, S., and W. Hamlen. 1981. “The Concept of Fairness in the Choice of Joint Cost Allocation Methods.” Proceedings of the Joint Cost Allocation Conference, University of Oklahoma (April).Google Scholar
  8. Hamlen, S., W. Hamlen, and J. Tschirhart. 1977. “The Use of Core Theory in Evaluating Joint Cost Schemes.”Accounting Review (July): 616–627.Google Scholar
  9. Hamlen, S., W. Hamlen, and J. Tschirhart. 1980. “The Use of the Generalized Shapley Allocation in Joint Cost Allocation.” Accounting Review (April): 269–287.Google Scholar
  10. Loehman, E.T., and A.B. Whinston. 1974. “An Axiomatic Approach to Cost Allocation for Public Investment.” Public Finance Quarterly (April): 236–251.Google Scholar
  11. Loehman, E.T., and A.B. Whinston. 1976. “A Generalized Cost Allocation Scheme.” In Theory and Measurement of Economic Externalties, edited by S. Lin, 87–101. New York: Academic Press.Google Scholar
  12. Moriarity, Shane, ed. 1981. Joint Cost Allocations, Proceedings of the Univ. of Oklahoma Conference on Cost Allocations. University of Oklahoma Press.Google Scholar
  13. Schmeidler, David. 1969. “The Nucleolus of a Characterisitic Function Game.” SIAM Journal of Applied Mathematics: 1163–1170.Google Scholar
  14. Shapley, L.S. 1953. “A Value of N-Person Games.” In Contributions to the Theory of Games, edited by H.W. Kuhn and A.W. Tucker, 307–317. Princeton, NJ: Princeton University Press.Google Scholar
  15. Takayama, A. 1974. Mathematical Economics. Hinsdale, IL: Dryden Press.Google Scholar
  16. Zimmerman, J.L. 1979. “The Costs and Benefits of Cost Allocations.” Accounting Review (July): 504–521.Google Scholar

Copyright information

© Kluwer Academic Publishers 1989

Authors and Affiliations

  • William A. HamlenJr.
  • Susan S. Hamlen

There are no affiliations available

Personalised recommendations