Monopoly regulation in the presence of consumer demand-reduction

Susumu Sato

Economics Letters, 2018, vol. 173, issue C, 61-64

Abstract: I study a monopoly regulation in the setting where consumers can engage in demand-reducing investments. I first show that, when the regulator ignores the consumers’ investments, the excess investment occurs. Next, I analyze the case where the regulator takes consumers’ investments into account and compare the optimal policy under asymmetric information with the first-best policy. Optimal policy results in higher average price, higher level of consumer investment, but lower prices for efficient firms, compared to the first-best.

Keywords: Monopoly regulation; Asymmetric information; Demand-reducing investments (search for similar items in EconPapers)
JEL-codes: L51 L97 (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:173:y:2018:i:c:p:61-64

DOI: 10.1016/j.econlet.2018.09.017

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