We represent quasi-linear preferences by the dual measure of consumer surplus, and investigate demand and the associated optimal pricing. In particular, we discuss substitutability with respect to the outside commodity, deriving a Slutsky-like decomposition of the price effects. We use our results to show that commodities with larger outside substitutability have smaller optimal Lerner indexes, and that Ramsey prices are always proportional to marginal costs only if preferences are fully homothetic.
A Note on Ramsey Pricing and the Structure of Preferences
Paolo Bertoletti
2018-01-01
Abstract
We represent quasi-linear preferences by the dual measure of consumer surplus, and investigate demand and the associated optimal pricing. In particular, we discuss substitutability with respect to the outside commodity, deriving a Slutsky-like decomposition of the price effects. We use our results to show that commodities with larger outside substitutability have smaller optimal Lerner indexes, and that Ramsey prices are always proportional to marginal costs only if preferences are fully homothetic.File in questo prodotto:
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