Microtheory Seminar Series. "Bilateral Monopoly Revisited: Price Formation, Efficiency and Countervailing Powers"
Published: 6 September 2024
08 October 2024. Professor Flavio Toxvaerd, University of Cambridge
Professor Flavio Toxvaerd, University of Cambridge
"Bilateral Monopoly Revisited: Price Formation, Efficiency and Countervailing Powers"
Tuesday, 08 October 2024. 16:00-17:30
Room 141B, Adam Smith Business School Building
Abstract
In this paper, I revisit and synthesize the rich literature on price formation in bilateral monopoly. I show how traditional flat-rate price posting (e.g. price setting and price taking) is akin to Nash bargaining over wholesale price with subsequent "right-to-manage", while two-part tariffs are akin to "bilaterally efficient" Nash bargaining over both wholesale price and quantity. Outcomes under the former protocol nest price posting and the cases of pure monopoly and pure monopsony. Outcomes under the latter protocol nest all-or-nothing offers and the Walrasian outcome under two-sided price taking and trace out the contract curve. With lopsided bargaining power, outcomes under right-to-manage can lead to socially superior outcomes to those that are bilaterally efficient. Last, effects of bargaining power on markups and markdowns are characterized.
Bio
Flavio Toxvaerd is Professor of Economics and Public Policy at the Faculty of Economics, University of Cambridge and a fellow of Clare College. He holds degrees from the University of Copenhagen (BSc Economics, MSc Economics), the London School of Economics (MSc Econometrics and Mathematical Economics), the London Business School (PhD Economics) and the University of Cambridge (PhD Theoretical Epidemiology). His research interests include industrial organisation, competition policy, economic theory and economic epidemiology. He is an Affiliated Researcher at the Bennett Institute for Public Policy and a Research Fellow at the Centre for Economic Policy Research. He is currently the inaugural UKRI Policy Fellow in Competition and Productivity Economics and has also been a member of the Academic Panel, both with the Competition and Markets Authority. He has also served as Senior Economic Advisor to the Review on Antimicrobial Resistance, which was set up by HM Government in collaboration with the Wellcome Trust.
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First published: 6 September 2024
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