Optimal Nonlinear Prices for Multiproduct Monopolies

Abstract

In models of a multiproduct firm with increasing returns to scale, prices are not set equal to costs. Ramsey prices, which are inversely proportional to the elasticity of demand when demands are independent, are usually used in this situation. An analogous pricing system has been derived for a single commodity firm charging different marginal prices, depending upon the amount consumed. Our main purpose is to study properties of such nonuniform price functions for a multi-product firm which faces consumers who are differentiated by a single characteristic. We show, using this simplification, that a multiproduct monopolist offers a nonuniform price schedule--analogous to the single product nonlinear price system--on a one-dimensional path, along which consumers choose their optimal bundles.