Robust Monopoly Regulation

Yingni Guo and Eran Shmaya

Papers from arXiv.org

Abstract: We study the regulation of a monopolistic firm using a robust-design approach. We solve for the policy that minimizes the regulator's worst-case regret, where the regret is the difference between his complete-information payoff minus his realized payoff. When the regulator's payoff is consumers' surplus, it is optimal to impose a price cap. The optimal cap balances the benefit from more surplus for consumers and the loss from underproduction. When his payoff is consumers' surplus plus the firm's profit, he offers a piece-rate subsidy in order to mitigate underproduction, but caps the total subsidy so as not to incentivize severe overproduction.

Date: 2019-10
New Economics Papers: this item is included in nep-com and nep-ind
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Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1910.04260

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