On the dynamic optimality of yardstick regulation

Michele Bisceglia (), Roberto Cellini () and Luca Grilli
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Michele Bisceglia: TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, UniBg - Università degli Studi di Bergamo = University of Bergamo
Roberto Cellini: Unict - Università degli studi di Catania = University of Catania
Luca Grilli: Unifg - Università degli Studi di Foggia = University of Foggia

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Abstract: This paper proposes a generalization of Shleifer's (RAND J Econ 16:319–327, 1985) model of yardstick competition to a dynamic framework. In a differential game setting, we show that the yardstick mechanism effectively replicates the first-best solution if players adopt open-loop behaviour rules and are symmetric at the initial time; in the absence of initial symmetry, the social efficiency is reached only in the asymptotic steady state. On the contrary, if players adopt Markovian behaviour rules, then the yardstick pricing rule cannot achieve the first-best solution along the equilibrium path of any Markov Perfect Nash Equilibrium.

Keywords: Yardstick competition; Dynamic price regulation; Differential games (search for similar items in EconPapers)
Date: 2022-08
Note: View the original document on HAL open archive server: https://hal.science/hal-04929162v1
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Published in Annals of Operations Research, 2022, 315, pp.73-92. ⟨10.1007/s10479-022-04671-x⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04929162

DOI: 10.1007/s10479-022-04671-x

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