Monopoly Model Research Articles

Chaotic Behavior of Monopoly Model

Chaotic Behavior of Monopoly Model

Versioning Goods and Joint Purchase: Substitution and Complementarity Strategies

In the present paper, we develop a monopoly model of vertical product differentiation for analysing the monopolist's decision about the possibility of versioning goods as substitutes or complements when consumers can buy them simultaneously. In this context, we find that versioning goods as substitutes or complements is optimal for the monopolist if the cost of designing the bundle (the purchase of one unit of each version) is increasing, which implies that making variants of closer substitutes reduces costs. However, if making variants of closer substitutes is costly, the monopolist versions goods as complements only. The final result also depends on the degree of concavity and convexity of the cost function.

Output Diffusion of the Monopolist Over Time and Space

In this paper, we develop an output diffusion model in which a monopoly firm faces a cost of adjusting output over time and across geographic regions. First, we investigate a dynamic monopoly model and a simple spatial model with only regional adjustment costs. Then, we explore how the firm maximizes profits over time and space, a calculus of variation problem. The Euler equation yields a partial differential equation which forms our output diffusion model. It extends the traditional inter-temporal output path into output diffusion over time and space. As long as regional adjustment costs exist, steady-state output in the diffusion model is less than the static monopoly output level. This model suggests that a policy designed to lower regional adjustment costs can increase supply in all geographic regions.

Learning and Pricing with Models That Do Not Explicitly Incorporate Competition

In revenue management research and practice, demand models are used that describe how demand for a seller’s products depends on the decisions, such as prices, of that seller. Even in settings where the demand for a seller’s products also depends on decisions of other sellers, the models often do not explicitly account for such decisions. It has been conjectured in the revenue management literature that such monopoly models may incorporate the effects of competition, because the parameter estimates of the monopoly models are based on data collected in the presence of competition. In this paper we take a closer look at such a setting to investigate the behavior of parameter estimates and decisions if monopoly models are used in the presence of competition. We consider repeated pricing games in which two competing sellers use mathematical models to choose the prices of their products. Over the sequence of games, each seller attempts to estimate the values of the parameters of a demand model that expresses demand as a function only of its own price using data comprised only of its own past prices and demand realizations. We analyze the behavior of the sellers’ parameter estimates and prices under various assumptions regarding the sellers’ knowledge and estimation procedures, and we identify situations in which (a) the sellers’ prices converge to the Nash equilibrium associated with knowledge of the correct demand model, (b) the sellers’ prices converge to the cooperative solution, and (c) the sellers’ prices have many potential limit points that are neither the Nash equilibrium nor the cooperative solution and that depend on the initial conditions. We compare the sellers’ revenues at potential limit prices with their revenues at the Nash equilibrium and the cooperative solution, and we show that it is possible for sellers to be better off when using a monopoly model than at the Nash equilibrium.

Municipal Competition for Inhabitants Under Population Decrease

The shrinking population during the break-down, adaptation and recovery phase in Estonian social and political development enforces municipal competition among the municipalities. Competition for inhabitants is embedded in regional competition showing horizontal and vertical competition relations. Inhabitants’ competition prevails indirectly through municipal business promotion competition and directly through competition for inhabitants. The competition shows three phases. A phase concerns zoning and long-term planning; a second one refers to negotiations with settlement firms and short-term actions to attract inhabitants followed by a phase of revisions of zoning and measures.The oligopolistic industrial zoning model of business promotion policy points to the consequences of horizontal municipal competition also on population. Vertical influences on business promotion policy demonstrate a game-theoretic example of intergovernmental intervention from higher government on zoning. The negotiation phase in business promotion policy is modelled by a bilateral monopoly model between a municipality and a settlement firm. Horizontal regional competition highlights the implications on inhabitants’ competition. An oligopoly model of direct inhabitant competition concerns the zoning in particular for housing. Furthermore, a model of public enterprise service and fee formation and of horizontal public firm competition shows inhabitants’ competition in the second phase. Forms of inhabitant competition concerning suburbanisation and using public debt, revenues such as taxes, fees and expenditures are mentioned. Finally, follows a discussion of possible instruments to regulate inhabitant competition.

The Birth of Monopoly, Alias Domestic Extreme Protectionism

This paper rejects the traditional monopoly model and works out a completely new one. It also offers a more concrete measure of the loss due to monopoly. Most economists regard monopoly and protectionism is the same, but this paper proves that they are not. Monopoly is the extreme form of protectionism; it is the elimination of both foreign and domestic competitors. This paper also introduces a new concept: domestic protectionism, and shows that it is more harmful than foreign protectionism.

How Does Market Size Affect Vertical Structure When Considering Vertical Coordination? Application to the Railway Industry

AbstractWe provide a theoretical framework to discuss the relation between market size and vertical structure in the railway industry. The framework is based on a simple downstream monopoly model with two input suppliers: the labour force and the rail infrastructure firm. The operation of the downstream firm (i.e. the train operating firm) imposes costs on the rail infrastructure firm. We show that the downstream firm with a larger market size is more likely to integrate with the rail infrastructure firm. This is consistent with the phenomenon in the railway industry.

On periodic and chaotic behavior in a two-dimensional monopoly model

We study the monopoly model of T. Puu with cubic price and quadratic marginal cost functions. A numerical continuation method is used to compute branches of solutions of period 5, 10, 13 and 17 and to determine the stability regions of these solutions. General formulas for solutions of period 4 are derived analytically. We show that the solutions of period 4 are never linearly asymptotically stable. A nonlinear stability criterion is combined with basin of attraction analysis and simulation to determine the stability region of the 4-cycles. This corrects the erroneous linear stability analysis in previous studies of the model. The chaotic and periodic behavior of the monopoly model is further analyzed by computing the largest Lyapunov exponents, and this confirms the above mentioned results.

The False Economic Rent Theory

This paper proves that the so-called marginal cost curve in the traditional monopoly model is a false image built on some wasteful experimental average cost curve. This paper then reveals the ugly but true picture of monopolists, and proves that they will not be satisfied with such limited economic rent, but rather they plunder for unlimited monopolist profit. This paper concludes with the comment of how the false rent concepts have been abused to kill people and confiscate their properties.

Economic analysis of the bureaucracy and the political market

The economic analysis of the political market considers the relationship between citizens / voters and elected as a market relationship where voters vote against exchange services or financial allocations. Analyzes of various democracies based on the assumption that state decisions when made are applied in a manner consistent with the authorities who are responsible for their practical implementation. The theory of bureaucracy challenges this assumption. The decisions made by elected representatives or the majority, which is the government must be implemented, thereby justifying the existence of public administrations, they are not mere implementers of government decisions: the literature on bureaucracy shows the development of administrative activities is not only the result but also due to the expansion of the public sector. The economic analysis of bureaucracy, offers two approaches to bureaucratic behavior: models of monopoly and those involved in the political market.

Environmental Regulation of Energy Sector in India

Energy production and use drive the world’s economies and offer hope for growth and prosperity. Yet, the extraction and use of fuels and the development of energy facilities are among the greatest threats to the global environment. The article provides about the legal, economic, and structural issues that both shape our energy practices and provide opportunities to overcome these critical problems. The article focuses primarily on the regulation and design of electricity systems and markets, since so many energy choices – the use of oil, natural gas, coal, nuclear, the green alternatives such as solar, wind, and energy conservation or “demand side management” – relate to the way we generate or deliver electricity, or avoid the need to do so. Next to the use of petroleum for transportation, electric generation is the greatest contributor to air pollution and the greatest source of greenhouse gas emissions. In addition, as urban and suburban development spread across the land, the maintenance and expansion of the electric transmission grid provide increasingly challenging land use problems. The article examines both the traditional monopoly model of regulation and evolving competitive alternatives. The course exposes about the energy resource planning, pollution management, rate design, green markets, energy efficiency, demand side management, renewable energy and climate change.

Impacts of the Renewable Portfolio Standard on Regional Electricity Markets

AbstractThis paper examines the effects of renewable portfolio standard (RPS) regulation on regional electricity markets. A regional market with one or two power suppliers with the capacity to generate renewable energy and access the tradable green certificate (TGC) market is considered. A monopoly model and a Nash game duopoly model to study the effects of TGC price and RPS percentage are established. Surprisingly, the analytical results indicate that the green power output decreases when the RPS percentage increases in a regional market. The analytical results also show that when the TGC price increases, the green power output increases and the total profit first decreases and then increases. Under both regional market structures, an optimal RPS percentage to maximize the social welfare exists. The difference between the two models is also compared with a numerical analysis. When the TGC price increases, the electricity outputs change more slowly in the duopoly market than in the monopoly market. The op...

Tax Principles and Coordination of Trade and Domestic Policies Under Imperfect Competition

We construct an exporting monopoly model to compare destination‐ and origin‐based commodity taxes in a context of a trade and domestic tax reform. We show that an export tax reduction and a change in destination (resp. origin) tax that fix the world price is strictly Pareto‐improving (resp. deteriorating), which holds whether markets are integrated or segmented. This result may provide a new rationale for preferring the destination‐based consumption tax to the origin‐based production tax that has been discussed in the literature of tax harmonisation and tax competition.

Applications of Price Gap and Adjustment Weights in Analyzing a Natural Monopoly with a Linear Decreasing Marginal Cost Function

A natural monopoly can meet the market demand alone cheaply than several firms together can. A natural monopoly enjoys the economies of scale of production, marginal cost decreases at least in the range of market demand for its product. Assuming a decreasing linear marginal cost function, this paper derives all the competitive, regulatory, and monopoly equilibrium formulae of a natural monopoly model using the price gap and adjustment weights. If also offers welfare analysis and all possible comparisons. It also derives a formula for the minimum compensation that should be made to the natural monopoly to offer the competitive output. Any results of this paper can be applied independently.

Self-Sabotage and Durable-Goods Monopoly

We analyze a simple two-period linear demand durable-goods monopoly model with “self-sabotage.” The firm has the ability to sabotage its own production by increasing its future (period two) manufacturing costs. We find that an uncommitted monopoly seller has an incentive to engage in such self-sabotage, while a committed seller or renter has no such incentive. Unlike the previous papers on self-sabotage, we show this occurs even though the firm faces no rivals in the output market. In our durable-goods setting, the incentive for self-sabotage arises from the seller’s commitment problem with period-one buyers (the so-called Coase conjecture). Interestingly, we also find that this sort of self-sabotage can not only be profit enhancing for the uncommitted firm, but may also increase social welfare (in contrast to the earlier models on self-sabotage.)

The Ace in the Game: Revenue from Legalized Marijuana

After marijuana is legalized, the costs of producing and selling it will collapse. What will happen to prices? A windfall economic gain will be up for grabs. Policymakers might allow that gain to go to consumers (encouraging consumption) or to cannabusinesses (encouraging production). Or, through revenue measures, they might direct the gain elsewhere (say, to society as a whole). Revenue can be a means, not an end. New revenue for government does not justify legalization of marijuana. New revenue may not cover the costs that legalization creates, and a revenue stream gives government a permanent stake in intoxication. Revenue is only one card in a large deck of drug policy options. But it is the most powerful card.How to play it? The safest, correctable way to distribute an intoxicant is government monopoly, Uruguay style: Retail-only monopoly can match or beat bootleggers’ wares. But monopoly breeds cronyism and corruption, unless power is spread around and transparent. In the United States, states might need to tweak the monopoly model to keep state control over location and price while assigning sales concessions to businesses.A riskier, more awkward plan is for governments to tax commercial distribution, Colorado and Washington style. In the inevitable post-legalization price war, bootleggers will act in a New York minute; Legislatures will not. Taxes are easier for bootleggers to beat than monopoly is. And no tax is perfect. Taxing by THC potency is theoretically appealing, but unworkable. A price tax base has several pitfalls. Even a weight base is problematic.Three other models are possible: auctioning licenses, collective farming, and sales by non-profits. Since no one really knows how to legalize, flexibility to change course is of the utmost importance.

A Reconsideration of the Theory of Monopoly: Inelastic Demand, Profit Maximization and Absolute Consumer Misery

This paper develops a model of monopoly in goods essential for existence. Such goods are characterized by inelastic demand and cannot be analyzed by the standard model of monopoly. Profit maximization reduces consumers to absolute misery and in one specification causes the death of extramarginal consumers. The model offers insights into market behavior ranging from AIDS drugs to the salt tax — a tax Adam Smith (1776, p. 855) considered so pernicious that “[t]hose who consider the blood of the people as nothing in comparison with the revenue of the prince, may perhaps approve of this method of levying taxes.

The difficulty of restricting promotion of legalized marijuana in the United States

The difficulty of restricting promotion of legalized marijuana in the United States

Dynamic Monopoly with Demand Delay

This study analyses the dynamics of nonlinear monopoly. To this end, the conventional assumptions in the text-book monopoly are modified; first, the complete information on the market is replaced with the partial information; second, the instantaneous information is substituted by the delay information. As a result, since such a monopoly is unable to jump, with one shot, to the optimal point for which the profit is maximized, the monopoly has to search for it. In a continuoustime framework, the delay destabilizes the otherwise stable monopoly model and generates cyclic oscillations via a Hopf bifurcation. In a discrete-time framework, the steady state bifurcates to a bounded oscillation via a Neimark-Sacker bifurcation. Although this has been only an introduction of delay into the traditional monopoly model, it is clear that the delay can be a source of essentially different behavior from those of the nondelay model.

Strategic real options with stochastic volatility in a duopoly model

The investment-timing problem has been considered by many authors under the assumption that the instantaneous volatility of the demand shock is constant. Recently, Ting et al. (2013) [12] carried out an asymptotic approach in a monopoly model by letting the volatility parameter follow a stochastic process. In this paper, we consider a strategic game in which two firms compete for a new market under an uncertain demand, and extend the analysis of Ting et al. to duopoly models under different strategic game structures. In particular, we investigate how the additional uncertainty in the volatility affects the investment thresholds and payoffs of players. Several numerical examples and comparison of the results are provided to confirm our analysis.