WHEN CAN REGULATION DEFER TO COMPETITION FOR CONSTRAINING MARKET POWER?: COMPLEMENTS AND CRITICAL ELASTICITIES

Dennis L. Weisman

Journal of Competition Law and Economics, 2006, vol. 2, issue 1, 101-112

Abstract: When can regulation defer to competition for imposing price discipline? We show that high price–cost margins, reflecting scale/scope economies, in combination with demand complementarities serve to constrain the market power of the (de)regulated firm. Because price increases that produce even small reductions in demand can generate significant losses in contribution to joint/common costs, relatively modest amounts of competition may be sufficient for deregulation. To assist policymakers in their deliberations, a comparison of firm-specific price elasticities and critical price elasticities can be used to determine whether the (de)regulated firm would have incentives to raise prices post-deregulation.

Date: 2006
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Persistent link: https://EconPapers.repec.org/RePEc:oup:jcomle:v:2:y:2006:i:1:p:101-112.

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Journal of Competition Law and Economics is currently edited by Nicholas Economides, Amelia Fletcher, Michal Gal, Damien Geradin, Ioannis Lianos and Tommaso Valletti

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