Friday, August 26, 2016
Nikolaos Danias (Department of Economics, University of Strathclyde) and J Kim Swales (Department of Economics, University of Strathclyde) review The welfare impacts of discriminatory price tariffs.
ABSTRACT: This paper looks at the use of asymmetric tariffs as a regulatory instrument. We use a monopolistic market setup with two markets and we introduce price controls in one of the two. The purpose of the regulator is to maximise consumer welfare through this price discriminatory practice. We consider cases where the welfare of the consumers in the two markets is weighted equally and cases where it is not. In some cases we allow for the two markets to be linked through a monopsonistic input market. The paper focuses on the welfare implications of this regulatory approach, with the firm operating under a profit restriction. Results suggest that having only one price-controlled market is in certain cases a good option from a welfare perspective.