Ramsey Pricing and Competition: The Consequences of Myopic Regulation

James Prieger ()

Journal of Regulatory Economics, 1996, vol. 10, issue 3, 307-21

Abstract: This paper addresses the welfare consequences of applying the Ramsey rule when the regulated firm is not a monopolist in all of its markets. The partially regulated optimum and the outcome of myopic regulation, the "Short-Sighted Ramsey Equilibrium" (SSRE), are examined in a differentiated duopoly model. In the optimum, the markup of competitive substitute goods is relatively high. In the SSRE, the regulator is likely to set the price of competitive substitute goods lower than optimal, and complementary goods higher than optimal. Strategic reactions by a competitor may reverse the result. Copyright 1996 by Kluwer Academic Publishers

Date: 1996
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