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Multiplant Monopoly in a Spatial Market
Michael L. Katz
The Bell Journal of Economics
Vol. 11, No. 2 (Autumn, 1980), pp. 519-535
Published by: RAND Corporation
Stable URL: http://www.jstor.org/stable/3003377
Page Count: 17
You can always find the topics here!Topics: Plant density, Profit planning, Monopoly profit maximization, Market prices, Transportation costs, Prices, Consumer prices, Consumer surplus, Public assistance programs, Total output
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This article analyzes the behavior of a multiplant monopolist in a spatial market. After demonstrating that the profit maximizer may establish an excessive or an insufficient number of plants, the article derives criteria by which to determine the direction of this distortion. The distortion arises when consumer surplus is a function of the number of plants (holding the level of output fixed) and, consequently, the private and social benefits from changes in plant density diverge. The article also examines monopolist's choice of output level. An example is presented in which the profit maximizer produces more output than would a welfare maximizer.
The Bell Journal of Economics © 1980 RAND Corporation