Can Poorly Informed Regulators Hinder Competition?

Ana Espinola-Arredondo and Felix Munoz-Garcia

No 2013-3, Working Papers from School of Economic Sciences, Washington State University

Abstract: This paper considers an entry-deterrence game in which environmental policy is set without perfectly observing the incumbent firm's costs. We investigate if regulators, who can have an informational advantage relative to the potential entrant, support entry-deterring practices. The paper demonstrates that, while entry-deterring equilibria only emerge under restrictive conditions when the regulator is perfectly informed, these equilibria arise under larger settings as he becomes uninformed. Furthermore, we show that the regulator is willing to support the incumbent?s entry-deterring practices regardless of his degree of information if entry costs are sufficiently high. However, when entry costs are lower, the regulator only sustains this type of practices if he is poorly informed.

Keywords: Entry deterrence; Signaling; Emission fees; Informational advantage (search for similar items in EconPapers)
JEL-codes: D82 H23 L12 Q5 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2013-02
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Journal Article: Can Poorly Informed Regulators Hinder Competition? (2015)
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