The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Ramsey Pricing

  • William J. Baumol
Reference work entry


Ramsey prices are prices that are Pareto optimal subject to a constraint on the total profits of a single supplier or group of suppliers. In particular, because a firm whose activities are characterized by scale economies will lose money if it sets the prices of its products equal to their marginal costs, Ramsey prices become for that firm the prices that are optimal (economically efficient) given the financial feasibility requirement that the firm’s profits be non-negative. The same Ramsey prices can also be shown to be those necessary for maximization of the sum of consumers’ and producers’ surpluses.


Contestable markets Hyperplanes Inverse elasticity Lump-sum taxes Marginal cost pricing Optimal taxation Pareto efficiency Ramsey pricing Ramsey, F. R. Second best 

JEL Classifications

This is a preview of subscription content, log in to check access.


  1. Baumol, W.J., and D.F. Bradford. 1970. Optimal departures from marginal cost pricing. American Economic Review 60: 265–283.Google Scholar
  2. Baumol, W.J., E.E. Bailey, and R.D. Willig. 1977. Weak invisible hand theorems on the sustainability of prices in a multiproduct monopoly. American Economic Review 67: 350–365.Google Scholar
  3. Boiteux, M. 1956. Sur la géstion des monopoles publics astreints à l’équilibre budgétaire. Econometrica 24: 22–40.CrossRefGoogle Scholar
  4. Diamond, P.A., and J.A. Mirrlees. 1971. Optimal taxation and public production: II. American Economic Review 61: 261–278.Google Scholar
  5. Hicks, U. 1947. Public finance. London: Nisbet.Google Scholar
  6. Hotelling, H. 1938. The general welfare in relation to problems of taxation and of railway and utility rates. Econometrica 6: 242–269.CrossRefGoogle Scholar
  7. Pigou, A.C. 1928. A study in public finance. London: Macmillan.Google Scholar
  8. Ramsey, F. 1927. A contribution to the theory of taxation. Economic Journal 37: 47–61.CrossRefGoogle Scholar
  9. Samuelson, P.A. 1951. Theory of optimal taxation. Unpublished memorandum for the US Treasury.Google Scholar

Copyright information

© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • William J. Baumol
    • 1
  1. 1.