Pareto optimal allocation and price equilibrium for a duopoly with negative externality

Pareto optimal allocation and price equilibrium for a duopoly with negative externality

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Article ID: iaor20031278
Country: Netherlands
Volume: 116
Issue: 1
Start Page Number: 129
End Page Number: 152
Publication Date: Oct 2002
Journal: Annals of Operations Research
Authors: , ,
Keywords: economics
Abstract:

A spatial competition model involving decisions made by consumers and firms is proposed. A regulating agent assigns the demand, taking into account the price, transport and externality cost, and minimizing the joint consumer cost to obtain a Pareto optimal allocation. Assuming the Pareto optimal allocation, firms fix prices in order to maximize the profit. An equilibrium problem is studied and some results are presented. The problem and results are illustrated with an example.

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