Prices vs. Quantities and Delegating Price Authority to a Monopolist

Paul Chen

The Review of Economic Studies, 1990, vol. 57, issue 3, 521-529

Abstract: This paper examines the desirability of allowing a monopolist to determine the market price. We find that none of the regulatory mechanisms previously discussed in the "prices vs. quantities" literature strictly dominates unregulated, monopoly price-setting. Furthermore, despite suggestions by others, price-setting by a regulated monopolist whose profits coincide with society's net benefits is not always the most desirable means of control. Quantity-setting by such a monopolist may instead be the preferred choice. Combining both into one incentive-compatible mechanism provides the best regulatory scheme and one in which the regulator need not be informed about costs.

Date: 1990
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Persistent link: https://EconPapers.repec.org/RePEc:oup:restud:v:57:y:1990:i:3:p:521-529.

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