Regulating a Monopolist with Unknown Demand

Tracy Lewis and David Sappington

American Economic Review, 1988, vol. 78, issue 5, 986-98

Abstract: The authors analyze the optimal regulatory policy when the firm has better information about demand than the regulator from the outset of their relationship. The firm's cost structure is common knowledge, but monitoring of output is prohibitively costly. The authors find that, when marginal production costs increase with output, the firm command s no rents from its private information and the efficient price is established for each realization of demand. In contrast, with declining marginal costs, the same price is established by the regulator for all demand realizations and the firm's rents can be substantial. Overall, major qualitative differences in the optimal regulatory policy arise when the firm's private information concerns demand rather than costs. Copyright 1988 by American Economic Association.

Date: 1988
References: Add references at CitEc
Citations: View citations in EconPapers (25)

Downloads: (external link)
http://links.jstor.org/sici?sici=0002-8282%2819881 ... O%3B2-V&origin=repec full text (application/pdf)
Access to full text is restricted to JSTOR subscribers. See http://www.jstor.org for details.

Related works:
Working Paper: Regulating a Monopolist with Unknown Demand (1987)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:aea:aecrev:v:78:y:1988:i:5:p:986-98

Ordering information: This journal article can be ordered from
https://www.aeaweb.org/journals/subscriptions

Access Statistics for this article

American Economic Review is currently edited by Esther Duflo

More articles in American Economic Review from American Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by Michael P. Albert ().