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The investment effects of price caps under imperfect competition: A note

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  • Buehler, Stefan
  • Burger, Anton
  • Ferstl, Robert

Abstract

We examine the impact of price cap regulation on the capacity investments of oligopolistic suppliers facing time-varying demand. We find that binding price caps set above long-run marginal cost increase (rather than decrease) aggregate capacity investment.

Suggested Citation

  • Buehler, Stefan & Burger, Anton & Ferstl, Robert, 2010. "The investment effects of price caps under imperfect competition: A note," Economics Letters, Elsevier, vol. 106(2), pages 92-94, February.
    • Handle: RePEc:eee:ecolet:v:106:y:2010:i:2:p:92-94
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    Cited by:

    1. Breton, Michèle & Kharbach, Mohammed, 2012. "Transportation and storage under a dynamic price cap regulation process," Energy Economics, Elsevier, vol. 34(4), pages 918-929.
    2. Juha Teirilä & Robert A. Ritz, 2019. "Strategic Behaviour in a Capacity Market? The New Irish Electricity Market Design," The Energy Journal, , vol. 40(1_suppl), pages 105-126, June.
    3. Brown, David P. & Sappington, David E. M., 2022. "The Impact of Wholesale Price Caps on Forward Contracting," Working Papers 2022-12, University of Alberta, Department of Economics.
    4. Marcos, Félix, 2011. "Price regulation in oligopolistic markets," UC3M Working papers. Economics 13443, Universidad Carlos III de Madrid. Departamento de Economía.
    5. Teirila, J., 2017. "Market Power in the Capacity Market? The Case of Ireland," Cambridge Working Papers in Economics 1727, Faculty of Economics, University of Cambridge.

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    More about this item

    Keywords

    Capacity Investment Cournot competition Price cap;

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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