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- Ramsey_problem abstract "The Ramsey problem, or Ramsey–Boiteux pricing, is a policy rule concerning what price a monopolist should set, in order to maximize social welfare, subject to a constraint on profit. A closely related problem arises in relation to optimal taxation of commodities.For any monopoly, the price markup should be inverse to the price elasticity of demand: the more elastic demand for the product, the smaller the price markup. This was stated by Joan Robinson (1933) but it has been recognized later that Frank P. Ramsey has found a similar result before (1927) in another context (taxation). The rule was later applied by Marcel Boiteux (1956) to natural monopolies (decreasing mean cost): a natural monopoly experiences profit losses if it is forced to fix its output price at the marginal cost, subject to Economies of Scale being exhausted. Hence the Ramsey–Boiteux pricing consists into maximizing the total welfare under the condition of non-negative profit, that is, zero profit. In the Ramsey–Boiteux pricing, the markup of each commodity is also inversely proportional to the elasticities of demand but it is smaller as the inverse elasticity of demand is multiplied by a constant lower than 1.It is applicable to public utilities or regulation of natural monopolies, such as telecommunications firms.Ramsey pricing is sometimes consistent with a government’s objectives because Ramsey pricing is economically efficient in the sense that it can maximize welfare under certain circumstances. There are, however, problems with Ramsey pricing. A profit-maximizing operator will choose Ramsey prices only if all markets are equally monopolistic or equally competitive. If markets are not equally monopolistic or competitive, then the regulator has an interest in ensuring that the extent to which the operator can use Ramsey pricing is limited to groups of services that are subject to similar degrees of competition. Regulators typically do this by forming groups of services that are subject to similar degrees of competition and allowing the operator price flexibility within each service group.Even though Ramsey pricing can be economically efficient, it may not be consistent with the government’s goal of providing affordable service to the poor and the rate by which prices change to achieve Ramsey-efficient prices may not be consistent with political sustainability. As a result of these two concerns, the regulator sometimes limits the operator’s ability to pursue Ramsey pricing within a service group. In the case of services to the poor, the regulator may place upper limits on the prices. In the case of services where traditional prices were different from Ramsey prices, there are equity issues in changing from the traditional pricing structure to a new structure, even if the new structure would be more efficient in an aggregate sense. In such situations, the regulator may impose pricing restrictions that prevent Ramsey pricing or that impose a slower transition to Ramsey pricing than the operator would choose left to its own devices.Lastly, regulators often note that Ramsey pricing is a form of price discrimination—although not necessarily a bad form of price discrimination—and customers sometimes object to it on that basis. The public sometimes believes that it is unfair to cause one type of customer to pay a greater mark-up above marginal cost than another type of customer. In such situations regulators may further limit an operator’s ability to adopt Ramsey prices.Practical issues exist with attempts to use Ramsey pricing for setting utility prices. It may be difficult to obtain data on different price elasticities for different customer groups. Also, some customers with relatively inelastic demands may acquire a strong incentive to seek alternatives if charged higher markups, thus undermining the method. Politically, customers with relatively inelastic demands may also be considered as those for whom the service is more necessary or vital; charging them greater markups can be challenged as unfair. Crucially, many economists deny this, considering less vital services as unnecessary depending on its price elasticity of demand.".
- Ramsey_problem wikiPageID "1498759".
- Ramsey_problem wikiPageLength "7821".
- Ramsey_problem wikiPageOutDegree "17".
- Ramsey_problem wikiPageRevisionID "674785009".
- Ramsey_problem wikiPageWikiLink Amoroso–Robinson_relation.
- Ramsey_problem wikiPageWikiLink Category:Economic_policy.
- Ramsey_problem wikiPageWikiLink Category:Monopoly_(economics).
- Ramsey_problem wikiPageWikiLink Commodity.
- Ramsey_problem wikiPageWikiLink Deadweight_loss.
- Ramsey_problem wikiPageWikiLink Frank_P._Ramsey.
- Ramsey_problem wikiPageWikiLink Joan_Robinson.
- Ramsey_problem wikiPageWikiLink Lagrange_multiplier.
- Ramsey_problem wikiPageWikiLink Monopoly.
- Ramsey_problem wikiPageWikiLink Natural_monopoly.
- Ramsey_problem wikiPageWikiLink Optimal_tax.
- Ramsey_problem wikiPageWikiLink Price_discrimination.
- Ramsey_problem wikiPageWikiLink Price_elasticity_of_demand.
- Ramsey_problem wikiPageWikiLink Profit_(economics).
- Ramsey_problem wikiPageWikiLink Telecommunication.
- Ramsey_problem wikiPageWikiLink Theory_of_the_second_best.
- Ramsey_problem wikiPageWikiLink Welfare_economics.
- Ramsey_problem wikiPageWikiLinkText "Ramsey problem".
- Ramsey_problem wikiPageWikiLinkText "Ramsey's analysis".
- Ramsey_problem wikiPageWikiLinkText "Ramsey_problem".
- Ramsey_problem en "Marcel Boiteux".
- Ramsey_problem lang "fr".
- Ramsey_problem verticalAlign "sup".
- Ramsey_problem wikiPageUsesTemplate Template:Citation_needed.
- Ramsey_problem wikiPageUsesTemplate Template:Link-interwiki.
- Ramsey_problem wikiPageUsesTemplate Template:Reflist.
- Ramsey_problem subject Category:Economic_policy.
- Ramsey_problem subject Category:Monopoly_(economics).
- Ramsey_problem hypernym Rule.
- Ramsey_problem type Country.
- Ramsey_problem comment "The Ramsey problem, or Ramsey–Boiteux pricing, is a policy rule concerning what price a monopolist should set, in order to maximize social welfare, subject to a constraint on profit. A closely related problem arises in relation to optimal taxation of commodities.For any monopoly, the price markup should be inverse to the price elasticity of demand: the more elastic demand for the product, the smaller the price markup.".
- Ramsey_problem label "Ramsey problem".
- Ramsey_problem sameAs Q1757797.
- Ramsey_problem sameAs Ramsey-Regel.
- Ramsey_problem sameAs Problème_de_Ramsey-Boiteux.
- Ramsey_problem sameAs Regola_di_Ramsey.
- Ramsey_problem sameAs ラムゼイルール.
- Ramsey_problem sameAs Problem_Ramseya.
- Ramsey_problem sameAs m.0563sl.
- Ramsey_problem sameAs Q1757797.
- Ramsey_problem sameAs 拉姆齊問題.
- Ramsey_problem wasDerivedFrom Ramsey_problem?oldid=674785009.
- Ramsey_problem isPrimaryTopicOf Ramsey_problem.