We present preferences exhibiting a so-called subordinate good, namely a commodity such that the willingness to pay for it increases when the consumption of all goods increases proportionally, and thus receives a negative price-cost margin according to Ramsey pricing. We also show that its Bertrand equilibrium price is above its Cournotian price.
Bertoletti, P. (2024). Ramsey pricing: a simple example of a subordinate commodity. PORTUGUESE ECONOMIC JOURNAL, 23(2), 241-247 [10.1007/s10258-023-00238-1].
Ramsey pricing: a simple example of a subordinate commodity
Bertoletti, P
2024
Abstract
We present preferences exhibiting a so-called subordinate good, namely a commodity such that the willingness to pay for it increases when the consumption of all goods increases proportionally, and thus receives a negative price-cost margin according to Ramsey pricing. We also show that its Bertrand equilibrium price is above its Cournotian price.
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