Intertemporal price cap regulation under uncertainty

Ian Dobbs ()

Economic Journal, 2004, vol. 114, issue 495, 421-440

Abstract: This paper examines the intertemporal price cap regulation of a firm that has market power. Under uncertainty, the unconstrained firm 'waits longer' before investing or adding to capacity and as a corollary, enjoys higher prices over time than would be observed in an equivalent competitive industry. In the certainty case, the imposition of an inter-temporal price cap can be used to realise the competitive market solution; by contrast, under uncertainty, it cannot. Even if the price cap is optimally chosen, under uncertainty, the monopoly firm will generally (a) under-invest and (b) impose quantity rationing on its customers. Copyright 2004 Royal Economic Society.

Date: 2004
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Persistent link: https://EconPapers.repec.org/RePEc:ecj:econjl:v:114:y:2004:i:495:p:421-440

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