Monopolistic Competition with Outside Goods

“…Glazer and McGuire's paper is primarily concerned with this statistical issue. 6 It would be straightforward to generalize the model to n > 2 providers located on a circle as in Salop (1979). 7 This payment could be implemented by giving each individual a voucher with a given face value (possibly differentiated across consumers) that can be used only to purchase a bundle of services from one of the providers.…”

Section: Introductionmentioning

confidence: 99%

Optimal risk adjustment with adverse selection and spatial competition

Jack

2006

Journal of Health Economics

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Paying insurers risk-adjusted prices for covering different individuals can correct selection incentives and induce the market to provide optimal insurance policies. To calculate the optimal risk-adjusted prices we need to know (a) what the optimal policies are; (b) how much they cost; and (c) how competitive the market is. We examine these issues in a model with spatial heterogeneity and adverse selection. Market equilibrium is characterized, and delivery of the socially optimal insurance policies is possible, as long as providers are paid risk-adjusted fees for each individual they serve. When the payment can be made on the basis of an individual's risk, it should be sufficient to cover the expected cost of the socially optimal policy for that person, plus a mark-up. If payments can be made only on the basis of a partially informative signal, the optimal risk-based payments should be adjusted according to a simple linear transformation, identified by Glazer and McGuire [Glazer, J., McGuire, T., 2000. Optimal risk adjustment of health insurance premiums: an application to managed care. American Economic Review 90 (4), 1055-1071].

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“…Properties 1, 2, and 3 are satisfied by the Hotelling model of LRT (1998a) and the circular city model with n = 2 or 3 (Salop, 1979). For n > 3, our model is more natural 11 Property 2 can be more rigorously defined as follows.…”

Section: The Modelmentioning

confidence: 94%

A Retail Benchmarking Approach to Efficient Two-Way Access Pricing

Jeon

Hurkens

2007

SSRN Journal

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We study a retail benchmarking approach to determine access prices for interconnected networks. Instead of considering fixed access charges as in the existing literature, we study access pricing rules that determine the access price that network i pays to network j as a linear function of the marginal costs and the retail prices set by both networks. In the case of competition in linear prices, we show that there is a unique linear rule that implements the Ramsey outcome as the unique equilibrium, independently of the underlying demand conditions. In the case of competition in two-part tariffs, we consider a class of access pricing rules, similar to the optimal one under linear prices but based on average retail prices. We show that firms choose the variable price equal to the marginal cost under this class of rules. Therefore, the regulator (or the competition authority) can choose one among the rules to pursue additional objectives such as consumer surplus, network coverage or investment: for instance, we show that both static and dynamic efficiency can be achieved at the same time.

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Monopolistic Competition with Outside Goods

Cited by 2,417 publications

References 14 publications

Standardization, Compatibility, and Innovation

Standardization, Compatibility, and Innovation

Optimal risk adjustment with adverse selection and spatial competition

A Retail Benchmarking Approach to Efficient Two-Way Access Pricing

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