Pricing, Accounting and Costs

Abstract

Coase has left his mark on economics in that branch of the discipline that we call microeconomics, or price theory. Perhaps the most traditionally micro-theoretic elements of his work are his forays into the areas of pricing and costs. His work on pricing is confined primarily to situations of monopoly,¹ and his most enduring impact in this area is his analysis of price regulation under conditions of natural monopoly, where he saw multi-part pricing as the efficient pricing scheme. His contribution here does not lie in his advocacy of multi-part pricing per se (indeed, others had advocated this scheme before Coase) and he does little in the way of developing this idea. Rather, his contribution lies in his systematic exposure of the inefficiencies attending the then dominant idea that marginal cost pricing is the optimal response to situations of natural monopoly. His analysis marks a turning point in the professional perception of the relative merits of the marginal cost and multi-part approaches to natural monopoly price regulation.