Multiproduct Pricing Made Simple

Aug 2018

Journal of Political Economy, Vol. 126, No. 4, p. 1444-1471

DOI: https://doi.org/10.1086/697902

Mark Armstrong and John Vickers

We study multiproduct firms in the contexts of unregulated monopoly, regulated monopoly, and Cournot oligopoly. Using the concept of consumer surplus as a function of quantities (rather than prices), we present simple formulas for optimal prices and show that Cournot equilibrium exists and corresponds to a Ramsey optimum. We then discuss a tractable class of preferences that involve a generalized form of homotheticity. Profit-maximizing quantities are proportional to efficient quantities. We discuss optimal monopoly regulation when the firm has private information about its cost vector and find situations in which optimal regulation leaves relative price decisions to the firm.