Tighter Average Revenue Regulation Can Reduce Consumer Welfare

Peter J Law

Journal of Industrial Economics, 1995, vol. 43, issue 4, 399-404

Abstract: A monopolist producing for two markets is subject to an average revenue constraint, a form of regulation which is relevant to some U.K. utilities. Where marginal costs of serving the two markets differ, tighter regulation may cause one of the prices to rise as shown by I. Bradley and C. Price (1988). A simple linear example demonstrates that total consumer surplus may fall as regulation becomes more stringent. Copyright 1995 by Blackwell Publishing Ltd.

Date: 1995
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