Multiproduct Price Regulation Under Asymmetric Information

Mark Armstrong and John Vickers

Journal of Industrial Economics, 2000, vol. 48, issue 2, 137-160

Abstract: We discuss the regulation of a multiproduct monopolist when the firm has private information about cost or demand conditions. The regulator offers the firm a set of prices from which to choose. When there is private information only about costs, the firm should always have a degree of discretion over its pricing policy. When uncertainty concerns demand, whether discretion is desirable depends on how demand elasticities vary with the scale of demands. If a positive demand shock is associated with a reduction in the market elasticity, discretion is good for overall welfare; otherwise it is not.

Date: 2000
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