Gain In Consumer Surplus Research Articles

Third‐Degree Price Discrimination in Oligopoly when Markets are Covered*

We analyze oligopolistic third‐degree price discrimination relative to uniform pricing when markets are covered. Pricing equilibria are critically determined by supply‐side features such as the number of firms and their marginal cost differences. It follows that each firm's Lerner index under uniform pricing is equal to the weighted harmonic mean of the firm's relative margins under discriminatory pricing. Uniform pricing then lowers average prices and raises consumer surplus. We can calculate the gain in consumer surplus and loss in firms' profits from uniform pricing based only on the market data of the discriminatory equilibrium (i.e., prices and quantities).

Eliminating digital rights management from the E-book market

We examine the impact of removing Digital Rights Management (DRM) from electronic book devices. We derive a Bayesian hierarchical logit model based on the consumer’s utility maximization problem and estimate the model using data from a choice-based survey. We then simulate the counterfactual market outcomes when DRM is removed; on average, the consumer surplus increases nontrivially holding everything else constant. However, the gain in consumer surplus is diminished when we re-calibrate e-book device prices. Further, if there is a negative shock to content supply, then the consumer surplus could in fact decrease after DRM removal.

A political economy perspective on horizontal FDI in a dynamic Cournot-oligopoly with endogenous entry

Entry in a homogeneous Cournot-oligopoly is excessive if and only if there is business-stealing (Amir et al., 2014). The excessive entry prediction has been derived primarily for closed economies and using a welfarist benchmark. We extend this framework and allow for (1) horizontal FDI in a multi-period setting and (2) interest group-based government behaviour. Opening the market to greenfield investments from abroad tends to aggravate the entry distortion. Moreover, market opening may reduce welfare if a more pronounced entry distortion dominates the gain in consumer surplus. Finally, a government, which places sufficiently little weight on the interests of consumers, will object to market opening, even if welfare rises.

A Model of Room Rentals in a Seasonal Hotel Illustrating Monopolistic Competition

We illustrate monopolistic competition with an original model of hotel rooms for daily rental that has peak and off-peak demand periods. There are two types of hotels, hotelK and hotelL, each having linear total costs with absolute capacity limits. HotelsK are static efficient since they operate with low MC. They are open year-around and always at full capacity. HotelsL are output flexible since they operate with low FC. They open only in the peak-demand periods. We show, under conditions of the model, that the added cost to supply irregular demand should be small because of hotelsL low FC. We show, under the conditions of the model, that the added gain in consumer surplus in increasing the irregularity should be large because consumers will be switching some consumption from off-peak to peak periods.

The Environmental Impact of Bertrand and Cournot Duopolies - A Cautionary Note

We compare a Bertrand with a Cournot duopoly in a setting where production is polluting and exploits natural resources, and firms bear convex production costs. We adopt Dastidar's (1995) approach, yielding a continuum of Bertrand-Nash equilibria ranging above marginal cost pricing also, to show that softening price competition may lead to a lower output production in a Bertrand rather than a Cournot industry. The market structure bringing about the lowest output determines the highest social welfare, given the fact that the negative environmental effects of production more than offset the gain in consumer surplus.

The welfare impact of policy interventions in the foodgrain markets in Bangladesh

The paper attempts to estimate the welfare impact of different policy interventions in the foodgrain markets in Bangladesh using an economic surplus approach. Over the period of analysis, 1980–2003, the loss in consumer surplus exceeded the gain in producer surplus plus the gain in government revenue. Therefore, the interventions resulted in a deadweight welfare loss for society. In contrast, in the policy of liberalization, the gain in consumer surplus and in government revenue is larger than the loss in producer surplus, producing a net welfare gain to society.

Impact of Potato Trade Liberalisation on Soil Erosion: A Multi Period Market Simulation Model

This study quantifies the welfare changes in potato trade liberalisation in Sri Lanka incorporating long-term social cost of soil erosion into a multiperiod market simulation model. Seven alternative crops were considered for studying long-term land use changes induced by potato trade liberalisation. On-site cost of soil erosion was incorporated in the model through a dynamic soil depth crop yield function and cumulative off-site costs were deducted in calculating net welfare changes associated with land use changes induced by potato trade liberalisation. The results show that gain in consumer surplus is much higher than loss in producer surplus, government revenue and environmental cost. Thus, findings show that trade liberalisation is welfare improving. With regard to the impact of trade liberalisation on environment, the findings are however, non-conclusive. Depending on the empirical setting, trade liberalisation may induce environmentally friendly or unfriendly land use changes. Some environmental policies may be necessary in conjunction with trade liberalisation as it may not necessarily induce environmentally friendly land use changes. DOI: http://dx.doi.org/10.4038/sjae.v3i0.3493 SJAE 2000; 3(1): 123-141

Incentives to Invest in Transport Cost Reduction - Conceptual Issues and an Application to Electronic Commerce

Abstract Do firms have proper incentives to invest in transport cost reduction? We discuss this question in a duopoly with a local firm and a distant competitor that may invest in a reduction of marginal transportation costs. In a two-stage game with investment in the first and duopoly competition in the second stage, we compare profit-maximizing investment with (constrained) welfare maximization by a social planer. Intuitively, a firm will overinvest if the negative impact on its competitor exceeds the gain in consumer surplus. We analyze how the relative strength of these two effects depends on market demand, firm conduct and investment costs. Applying our results to electronic commerce, we argue that for physical goods either overinvestment or the efficient decision not to invest is the most likely outcome while the specific characteristics of digital products yield either underinvestment or an efficient investment level that reduces transportation costs to zero.

The welfare effects of a subsidy to Multiple Listing Services

We show that the gain in consumer surplus resulting from subsidizing a Multiple Listing Service may exceed the cost of the subsidy. Thus a subsidy financed by taxing the consumer may be Pareto-improving. We give general conditions for this to hold.

The Incremental Surplus Subsidy and rate-of-return regulation

Sappington and Sibley (1988) propose an alternative regulatory mechanism, the Incremental Surplus Subsidy (ISS), that would induce the regulated firm to set price at marginal cost and eliminate all waste. The ISS would give the firm a subsidy equal to the one-period gain in consumer surplus resulting from its pricing decision. This article shows that the ISS does not induce greater production efficiency than traditional rate-of-return (ROR) regulation. The author proposes a “super-ISS” mechanism that would give the firm a subsidy greater than the gain in consumer surplus resulting from its pricing decisions. This super-ISS mechanism is shown to result in greater benefits than either ISS or ROR regulation.

Economic evaluation in primary health care: The case of Western Kenya community based health care project

This paper describes the methodology and presents preliminary results of an economic appraisal of a community based health care project in Kenya. Community health workers, trained for 12 weeks and deployed in two locations in Kenya's Western Province, act as first contact providers of basic health care and promoters of selected health, sanitation and nutrition practices. A Cost Benefit Analysis has been undertaken using the Willingness to Pay approach to compare the costs of the project and its benefits. The benefits are in the form of more easily accessible basic health care and are measured as consumer surplus accruing to the community. Gain in consumer surplus is consequent on the fall of average user costs and rise in utilisation of the project established points of first contact with primary health care. The argument for the economic viability of the project is validated by the large Net Present Value and Benefit Cost Ratio obtained for the whole of the project area and for the two locations separately. Although the evaluation technique used faces the problem of valuation of community time, aggregation of health care services at all points of first contact and the partial nature of cost benefit analysis evaluations, the results are strongly in favour of decentralisation of primary health care on similar lines in the rest of the country.