| Sumario: | In the latter case, empirical use of the relative curvature criterion would require not only estimation of demand functions but also knowledge of the producer's probability distribution of certain demand parameters or certain rates of return.[2] <BR> In Section I of this paper, a criterion that seems to be more easily observable is derived. Suppose that a discriminating monopolist maximizes profit by selling in two markets at prices p<SUB1> and p<SUB2> respectively; and suppose that p<SUB2> is greater than p<SUB1>. If a small increase in some cost parameter (such as an input price) leads, ceteris paribus, to a decline in the ratio p<SUB2>/p<SUB1>, then it will be shown that curtailing somewhat the seller's ability to discriminate (with cost parameters now constant) will cause total output to decline. If p<SUB2>/p<SUB1> increases under the conditions stated, curtailing the producer's ability to discriminate will cause output to increase. <BR> Section II takes up the application of this criterion in the presence of uncertainty with regard to a seller's total revenue function. Section III takes up the local nature of the criterion and discusses its use in the presence of a constraint reducing p<SUB2>/p<SUB1>, by a relatively large amount below its discriminating monopoly level.
|
|---|