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Welfare Consequences of Tight Price-Cap Regulation

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  • Cowan, Simon

Abstract

This paper analyses the welfare effects of price-cap regulation of a multi-product monopolist when the price index has fixed weights. A tight cap can result in welfare below the level associated with an unregulated monopoly. This does not occur if the weights are based on lagged quantities and the level of the cap exceeds the previous period's total cost. In a two-period model the welfare problem is alleviated in the second period but first-period performance can be worse if the firm is not myopic. Copyright 1998 by Blackwell Publishing Ltd and the Board of Trustees of the Bulletin of Economic Research

Suggested Citation

  • Cowan, Simon, 1998. "Welfare Consequences of Tight Price-Cap Regulation," Bulletin of Economic Research, Wiley Blackwell, vol. 50(2), pages 105-116, April.
    • Handle: RePEc:bla:buecrs:v:50:y:1998:i:2:p:105-16
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    Cited by:

    1. Seeto, Dewey Q. & Woo, C. K. & Horowitz, Ira, 2001. "Finessing the unintended outcomes of price-cap adjustments: an electric utility multi-product perspective," Energy Policy, Elsevier, vol. 29(13), pages 1111-1118, November.
    2. Xiaojie Yang & Li Liu & Yi Zheng & Xue Yang & Shanlin Sun, 2022. "Pricing Problems in the Pharmaceutical Supply Chain with Mixed Channel: A Power Perspective," Sustainability, MDPI, vol. 14(12), pages 1-20, June.
    3. World Bank, 2006. "Approaches to Private Participation in Water Services : A Toolkit," World Bank Publications - Books, The World Bank Group, number 6982.
    4. Chen, Xu & Yang, Huan & Wang, Xiaojun, 2019. "Effects of price cap regulation on the pharmaceutical supply chain," Journal of Business Research, Elsevier, vol. 97(C), pages 281-290.
    5. Chen, Xu & Li, Shanshan & Wang, Xiaojun, 2020. "Evaluating the effects of quality regulations on the pharmaceutical supply chain," International Journal of Production Economics, Elsevier, vol. 230(C).

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