Regulation by Price Adjustment

James Hagerman

RAND Journal of Economics, 1990, vol. 21, issue 1, 72-82

Abstract: The regulatory price-adjustment process originally proposed by Vogelsang and Finsinger has been shown to be vulnerable to strategic manipulation by the regulated firm. This article proposes several modifications to that scheme which improve its performance and broaden its applicability. Inclusion of a monopoly franchise market and the firm's past prices and earnings in the price-adjustment constraints are shown to ensure efficient production by the firm and convergence to Ramsey prices regardless of the firm's cost structure.

Date: 1990
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