A note on empty bottles

This note examines the second-order conditions of the Massel-Parrish (M-P) model of a beverage market in which a monopolist producer of beverages packaged in ‘private mould’ bottles has monopsony power in the market for the empty bottles. Customers pay only the shelf price if they return the empty bottle; and, the shelf price plus the forfeited deposit if they discard it. The analysis determines directional changes in the optimal shelf price, deposit levels, and unit sales resulting from changes in each of five demand and three supply parameters. Potential effects of current legislation requiring mandatory deposits on all beverage containers are also analysed.