On the optimality of the yardstick regulation in the presence of dynamic interaction

Michele Bisceglia, Roberto Cellini and Luca Grilli

MPRA Paper from University Library of Munich, Germany

Abstract: This paper proposes a generalization of Shleifer's (1985) model of yardstick competition, to a dynamic framework. Specifically, we consider a differential game and we show that the yardstick mechanism is effective to replicate the first-best solution if players adopt open-loop behaviour rules and they 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 is not able to 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)
JEL-codes: C73 L51 (search for similar items in EconPapers)
Date: 2019-07-08
New Economics Papers: this item is included in nep-gth, nep-mic and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:94946

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