J. Gans. Working Paper, 26485. National Bureau of Economic Research, (November 2019)
DOI: 10.3386/w26485
Abstract
A model is provided whereby a monopolist firm chooses to price its product at zero. This outcome is shown to be driven by the assumption of ‘free disposal’ alongside selection markets (where prices impact on a firm’s costs). Free disposal creates a mass point of consumers whose utility from the product is zero. When costs are negative, the paper shows that a zero price equilibrium can emerge. The paper shows that this outcome can be socially optimal and that, while a move from monopoly to competition can result in a negative price equilibrium, this can be welfare reducing. The conclusion is that zero can be a ‘special zone’ with respect to policy analysis such as in antitrust.
%0 Report
%1 NBERw26485
%A Gans, Joshua S
%B Working Paper Series
%D 2019
%K 2019 economics facebook google
%N 26485
%R 10.3386/w26485
%T The Specialness of Zero
%U http://www.nber.org/papers/w26485
%X A model is provided whereby a monopolist firm chooses to price its product at zero. This outcome is shown to be driven by the assumption of ‘free disposal’ alongside selection markets (where prices impact on a firm’s costs). Free disposal creates a mass point of consumers whose utility from the product is zero. When costs are negative, the paper shows that a zero price equilibrium can emerge. The paper shows that this outcome can be socially optimal and that, while a move from monopoly to competition can result in a negative price equilibrium, this can be welfare reducing. The conclusion is that zero can be a ‘special zone’ with respect to policy analysis such as in antitrust.
@techreport{NBERw26485,
abstract = {A model is provided whereby a monopolist firm chooses to price its product at zero. This outcome is shown to be driven by the assumption of ‘free disposal’ alongside selection markets (where prices impact on a firm’s costs). Free disposal creates a mass point of consumers whose utility from the product is zero. When costs are negative, the paper shows that a zero price equilibrium can emerge. The paper shows that this outcome can be socially optimal and that, while a move from monopoly to competition can result in a negative price equilibrium, this can be welfare reducing. The conclusion is that zero can be a ‘special zone’ with respect to policy analysis such as in antitrust.},
added-at = {2020-01-18T20:56:05.000+0100},
author = {Gans, Joshua S},
biburl = {https://www.bibsonomy.org/bibtex/2914e4808739e7ca6a01ba5dd6044753d/analyst},
description = {The Specialness of Zero},
doi = {10.3386/w26485},
institution = {National Bureau of Economic Research},
interhash = {86320d87e3bb47ca9959403bdb04b100},
intrahash = {914e4808739e7ca6a01ba5dd6044753d},
keywords = {2019 economics facebook google},
month = {November},
number = 26485,
series = {Working Paper Series},
timestamp = {2020-01-18T20:56:05.000+0100},
title = {The Specialness of Zero},
type = {Working Paper},
url = {http://www.nber.org/papers/w26485},
year = 2019
}