Complexity, Efficiency, and Fairness of Multi-Product Monopoly Pricing

63 Pages Posted: 17 Sep 2013

See all articles by Eugenio J. Miravete

Eugenio J. Miravete

University of Texas at Austin; Centre for Economic Policy Research (CEPR)

Katja Seim

Yale School of Management

Jeff Thurk

University of Notre Dame

Multiple version iconThere are 2 versions of this paper

Date Written: September 2013

Abstract

The Pennsylvania Liquor Control Board administers the purchase and sale of wine and spirits across the state and is legally mandated to charge a uniform 30% markup on all products. We use an estimated discrete choice model of demand for spirits, together with information on wholesale prices, to assess the welfare and redistribution implications of the chosen uniform markup rule. We find that it reduces welfare significantly, but mimics the optimal behavior of a multi-product monopolist. Relative to product-specific prices, the uniform prices do not exploit the observed heterogeneity of consumption across products and demographic groups reflected in relative spirit demand elasticities. They implicitly tax high-income and educated households by overpricing their favored spirit varieties. Our estimated returns to very sophisticated pricing strategies are small indicating the use of more complex pricing mechanisms as being neither socially desirable nor privately profitable.

Keywords: Complex Pricing, Multi-Product Price Discrimination, Taxation by Regulation

JEL Classification: L12, L21, L32

Suggested Citation

Miravete, Eugenio J. and Seim, Katja and Thurk, Jeff, Complexity, Efficiency, and Fairness of Multi-Product Monopoly Pricing (September 2013). CEPR Discussion Paper No. DP9641, Available at SSRN: https://ssrn.com/abstract=2326502

Eugenio J. Miravete (Contact Author)

University of Texas at Austin ( email )

Department of Economics
1 University Station C3100
Austin, TX 78712-0301
United States
512-232-1718 (Phone)
512-471-3510 (Fax)

HOME PAGE: http://www.eco.utexas.edu/facstaff/Miravete

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Katja Seim

Yale School of Management ( email )

135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States

Jeff Thurk

University of Notre Dame ( email )

3047 Jenkins-Nanovic Hall
Notre Dame, IN New South Wales 46556
United States
5746313083 (Phone)

HOME PAGE: http://https://www3.nd.edu/~jthurk/

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