An algorithm for Ramsey pricing by multiproduct public firms under incomplete information (Q1119146)

We consider the problems facing a regulatory authority charged with the responsibility of regulating a multiproduct public firm. The regulatory constraint arises in the form of a break-even (profit) constraint. A price vector which maximizes social welfare subject to this break-even constraint is commonly referred to as a Ramsey price vector. This paper describes, in a general equilibrium framework, a regulatory procedure which converges to a Ramsey price vector. This procedure could be applied to a natural monopoly in a contestable market situation in which the regulator and the firm cooperate to implement Ramsey pricing as a limit pricing strategy to prevent incursions from potential entrants.