Welfare Consequences of Tight Price-Cap Regulation

Simon Cowan

Bulletin of Economic Research, 1998, vol. 50, issue 2, 105-16

Abstract: This paper analyses the welfare effects of price-cap regulation of a multi-product monopolist when the price index has fixed weights. A tight cap can result in welfare below the level associated with an unregulated monopoly. This does not occur if the weights are based on lagged quantities and the level of the cap exceeds the previous period's total cost. In a two-period model the welfare problem is alleviated in the second period but first-period performance can be worse if the firm is not myopic. Copyright 1998 by Blackwell Publishing Ltd and the Board of Trustees of the Bulletin of Economic Research

Date: 1998
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Persistent link: https://EconPapers.repec.org/RePEc:bla:buecrs:v:50:y:1998:i:2:p:105-16

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