Pareto-Improving Redistribution in a Monopoly

Abstract

This paper discusses the impact of income transfers between consumers of a monopoly. In this context, redistributing the incomes could induce an increase of the demand elasticity which leads to a lower monopoly price, beneficial to any consumer. Under mild assumptions on the demand function, we prove the existence of a transfer maximizing the market coverage which remains advantageous for any contributing consumer. It is proved that the producer is also better off. Then the transfer is Paretoimproving. In the linear demand case, analytical results are found. Extensions to Cournot oligopoly and natural monopoly pricing are considered. JEL Classification Numbers: D31, D64, H2, L13.

External economies of scale, government purchasing commitment and welfare improvements in the vaccines industry

“…Following Thépot (2003), the analysis could be applied to a one-unit goods market. (This approach is particularly conclusive for highly-esteemed or indispensable goods; such as vaccinations, housing, or access to communications or education).…”

“…As regards the related literature, some authors, like Thépot (2003), have tackled the issue within the context of imperfect competition. Our approach deviates from these studies in the fact that we examine perfectly competitive situations.…”

“…Our approach deviates from these studies in the fact that we examine perfectly competitive situations. Thépot (2003) showed that government intervention (through income transfers, for instance) is able to correct the market failures associated with imperfect competition and to restore the Pareto efficiency. Yet, Pareto-improving policies are easily explained when some degree of market power exists.…”

Pareto-improving income redistribution: expanding consumer access to the vaccines market

“…For instance, a government intervention through income transfers could correct the market failures associated with imperfect competition and restore Pareto efficiency. Dillén (1995) tackles the issue in a general equilibrium setting, and Thépot (2003) explores B Pedro Garcia-del-Barrio pgarcia@uic.es the case of a monopoly in which the implementation of a tax subsidy scheme results in welfare improvements to all agents involved.…”

“…In the Thépot (2003) paper, the transfer mechanism is used as a device to increase the price elasticity of demand, which yields lower prices in the monopoly case. Under certain assumptions, the price reduction compensates for the payment made by contributing consumers, thereby leading to Pareto-improving situations.…”