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Title: |
Simultaneous Price and Quantity Determination in a Joint Profit
Maximizing Bilateral Monopoly under Dynamic Optimization |
| Author: |
Devadoss,
Stephen; Cooper, Kevin |
| Author
Affiliation: |
U ID; WA State
U |
| Source: |
International Economic Journal, Spring 2000, v. 14, no. 1, pp. 71-84 |
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Publication Date: |
Spring 2000 |
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Abstract: |
A long standing controversial issue in the
literature surrounding the bilateral monopoly is the determinacy of
equilibrium price and quantity when the seller and buyer maximize their
joint profits. This controversy led to incorrect presentations of
bilateral monopoly solutions in the literature. In this study, we employ
a dynamic optimization model to simultaneously determine the equilibrium
price and quantity transacted between the buyer and seller. We also show
that for the bilateral monopoly to achieve equilibrium they must
transact the intermediate product at the joint profit maximizing level.
Any deviation from this level will result in one party exercising
greater control than the other, and thus, will lead to a situation of
either pure monopsony or monopoly, or nonexistence of both parties. |
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