Should Regulators Be More Proactive About Entry? An Evaluation under Asymmetric Information

Paula Sarmento and António Brandão

Hitotsubashi Journal of Economics, 2012, vol. 53, issue 1, 71-84

Abstract: We compare the costs oftwo regulatory policies about the entry ofnew firms. We consider an incumbent firm that has more information about the market demand than the regulator and can use this advantage to persuade the regulator to make entry more difficult. With the first regulatory policy the regulator uses the incumbent price pre-regulation to get information about the demand. With the second regulatory policy the regulator designs a mechanism to motivate the incumbent firm to price truthfully. We conclude that for a wide range ofsituations, social welfare is strictly higher with the more active regulatory policy.

Keywords: entry regulation; signaling; mechanism design (search for similar items in EconPapers)
JEL-codes: C73 D82 L13 L51 (search for similar items in EconPapers)
Date: 2012
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Persistent link: https://EconPapers.repec.org/RePEc:hit:hitjec:v:53:y:2012:i:1:p:71-84

DOI: 10.15057/23147

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