Price caps regulation with capacity precommitment
Ana Belén Lemus Torres
Authors registered in the RePEc Author Service: Diego Moreno ()
UC3M Working papers. Economics from Universidad Carlos III de Madrid. Departamento de EconomÃa
Abstract:
In order to examine the effectiveness of price caps to regulate imperfectly competitive markets in which the demand is uncertain, we study a monopoly that makes irreversible capacity investments ex-ante, and then chooses its output upon observing the realization of demand. When capacity decisions have no precommitment value, price cap regulation remains fully effective. With capacity precommitment, however, the optimal price cap must trade off the incentives for capacity investment and capacity withholding, and is above the unit cost of capacity. While a price cap mitigates market power, it cannot eliminate inefficiencies. Capacity payments provide a useful complementary instrument.
Keywords: Monopoly; Market; Power; Price; Cap; Regulation; Capacity; Investment; Capacity; Withholding; Demand; Uncertainty (search for similar items in EconPapers)
Date: 2014-08-01
New Economics Papers: this item is included in nep-ene and nep-reg
References: Add references at CitEc
Citations:
Downloads: (external link)
https://e-archivo.uc3m.es/rest/api/core/bitstreams ... d2d620eebd27/content (application/pdf)
Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:cte:werepe:we1309
Access Statistics for this paper
More papers in UC3M Working papers. Economics from Universidad Carlos III de Madrid. Departamento de EconomÃa
Bibliographic data for series maintained by Ana Poveda ().