The Costs of Regulating Price Differences.
- Resource Type
- Article
- Authors
- Ross, Thomas W.
- Source
- Journal of Business; Jan86, Vol. 59 Issue 1, p143-156, 14p
- Subject
- PROFIT
ORGANIZATIONAL behavior
BEHAVIOR
PRICE regulation
FINANCIAL performance
- Language
- ISSN
- 00219398
The article considers some of the possible effects of cost-based regulating price differences on the behavior of a profit-maximizing firm in the United States. In a variety of situations in many countries the prices that firms may charge their customers are regulated. In some cases this regulation is directed toward the price differences allowed when a firm sells its output to different types of customers. It is usually the stated purpose of this regulation to ensure equitable or nondiscriminatory pricing. This paper studies some of the effects of cost-based pricing regulation on the behavior of profit-maximizing firms. Section 1 consider the case of a monopolist selling to two groups of consumers. The next section of the paper describes the two basic cost-based pricing rules and examines the effects of applying these rules on the profit-maximizing firm. The third section applies the model more directly to the Robinson-Patnian Act, suggesting who benefits from the act and which pricing rule tiles' prefer.