The Strange Career of Marginal Cost Pricing
The social welfare maximizing properties of marginal cost pricing have strict theoretical validity only in a world where all markets are competitive and the existing distribution of wealth is just. Marginal cost pricing begins as a very simple rule. However, as economists have attempted to apply it...
Gespeichert in:
Veröffentlicht in: | Journal of economic issues 1991-03, Vol.25 (1), p.77-92 |
---|---|
1. Verfasser: | |
Format: | Artikel |
Sprache: | eng |
Schlagworte: | |
Online-Zugang: | Volltext |
Tags: |
Tag hinzufügen
Keine Tags, Fügen Sie den ersten Tag hinzu!
|
Zusammenfassung: | The social welfare maximizing properties of marginal cost pricing have strict theoretical validity only in a world where all markets are competitive and the existing distribution of wealth is just. Marginal cost pricing begins as a very simple rule. However, as economists have attempted to apply it in regulatory contexts, they have been forced to deal with a variety of conceptual and practical problems; in the process, the rule has been transformed. In one version, marginal cost has been recommended merely as a lower bound on price or as a working criterion to define predatory pricing. Service incremental cost, a long-run marginal cost concept, has been proposed as a practical rule for multiproduct firms. The various reincarnations of marginal cost pricing are quite consistent in their results, invariably producing the lowest prices for the services sold in the most competitive markets or where demand is most elastic. These attempts to salvage efficiency rules based on a marginal concept of some sort reveal that the determination of price is as much about economic power as it is about efficiency. |
---|---|
ISSN: | 0021-3624 1946-326X |
DOI: | 10.1080/00213624.1991.11505129 |