Chapter 16: Monopoly and Price Discrimination
William J. Baumol Formal study of the theory of monopoly, as well as that of price discrimination, goes back to Cournot (1838, 1927), with a good deal contributed to the analysis of the latter by Dupuit. But the use of diagrams for the purpose apparently first occurred much later, in Marshall’s Principles (1920) and in the work of Auspitz and Lieben (1880) in the case of the determination of the output and prices that one can expect to be adopted by a monopolistic seller of a commodity. Early discussions of price discrimination without graphs also occur in Cournot and, more extensively, in Dupuit (1853), as well as in work by a number of engineers, including Charles Ellet, an American, and Dyonysius Lardner, British (see Ekelund and Hébert, 1999, Chapter 8). Later contributions early in the twentieth century were made by Hadley (1885), Edgeworth (1910, 1925), and Pigou (1912), among others. What appears to be the first use of graphics in the analysis of discriminating monopoly, however, occurs only in the work of Joan Robinson1 (1933). In two of these cases (Auspitz and Lieben, and Robinson), there is no substantive change between the initial diagrams and those used in textbooks today. GRAPHIC ANALYSIS OF MONOPOLY BEHAVIOR Marshall, and Auspitz and Lieben, both avoid explicit use of the concept of marginal revenue, though the concept does appear without the modern nomenclature in Cournot, in the form of the first derivative of total revenue, as deduced from the demand function. The term...
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