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Multiproduct cost passthrough: Edgeworth's Paradox revisited

Armstrong, Christopher Mark; Vickers, John; (2023) Multiproduct cost passthrough: Edgeworth's Paradox revisited. Journal of Political Economy , 131 (10) pp. 2645-2665. 10.1086/724573.

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Abstract

Edgeworth’s paradox of taxation occurs when an increase in the unit cost of a product causes a multiproduct monopolist to reduce prices. We give simple illustrations of the paradox and a general analysis of the case of linear marginal cost and demand conditions, and we characterize which matrices of cost pass-through terms are consistent with profit maximization. When the firm supplies at least one pair of substitute products, we show how Edgeworth’s paradox always occurs with a suitable choice of cost function. We then establish a connection between Ramsey pricing and the paradox in a form relating to consumer surplus.

Type: Article
Title: Multiproduct cost passthrough: Edgeworth's Paradox revisited
DOI: 10.1086/724573
Publisher version: https://doi.org/10.1086/724573
Language: English
Additional information: This version is the author accepted manuscript. For information on re-use, please refer to the publisher’s terms and conditions.
UCL classification: UCL
UCL > Provost and Vice Provost Offices > UCL SLASH
UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS
UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS > Dept of Economics
URI: https://discovery.ucl.ac.uk/id/eprint/10163926
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