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Asymmetric equilibria under price cap regulation

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  • Yasunori Okumura

    (TUMSAT)

Abstract

This study analyzes the effects of a price-cap regulation on market outcomes in Cournot and Stackelberg duopolies. Although two firms are ex-ante identical, there are asymmetric Cournot equilibria as well as the symmetric equilibrium under the price-cap regulation, when the price-cap level is binding. By contrast, the Stackelberg equilibrium is unique and equivalent to the most asymmetric Cournot equilibrium under a binding price-cap level. We present several comparative statics results with respect to the equilibrium outcomes. The main concern of this study is the welfare effect of a change in a price-cap level. We show that when asymmetric Cournot equilibria or the Stackelberg equilibrium are focused on, a reduction in a price-cap level may be socially harmful even if the price-cap level is more than the competitive price.

Suggested Citation

  • Yasunori Okumura, 2017. "Asymmetric equilibria under price cap regulation," Journal of Economics, Springer, vol. 121(2), pages 133-151, June.
    • Handle: RePEc:kap:jeczfn:v:121:y:2017:i:2:d:10.1007_s00712-017-0521-0
    DOI: 10.1007/s00712-017-0521-0
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    References listed on IDEAS

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    1. Robert Earle & Karl Schmedders & Tymon Tatur, 2007. "On Price Caps Under Uncertainty," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 74(1), pages 93-111.
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    3. Hiroaki Ino & Toshihiro Matsumura, 2012. "How Many Firms Should Be Leaders? Beneficial Concentration Revisited," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 53(4), pages 1323-1340, November.
    4. Hamilton, Jonathan H. & Slutsky, Steven M., 1990. "Endogenous timing in duopoly games: Stackelberg or cournot equilibria," Games and Economic Behavior, Elsevier, vol. 2(1), pages 29-46, March.
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    6. Toshihiro Matsumura & Noriaki Matsushima, 2003. "Mixed Duopoly with Product Differentiation: Sequential Choice of Location," Australian Economic Papers, Wiley Blackwell, vol. 42(1), pages 18-34, March.
    7. Matsumura Toshihiro & Okumura Yasunori, 2017. "Privatization Neutrality Theorem in Free Entry Markets," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 17(2), pages 1-9, June.
    8. Matsumura, Toshihiro & Okumura, Yasunori, 2013. "Privatization neutrality theorem revisited," Economics Letters, Elsevier, vol. 118(2), pages 324-326.
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    14. Okumura, Yasunori, 2015. "Volume and share quotas in Cournot competition," Economic Modelling, Elsevier, vol. 47(C), pages 137-144.
    15. Matsumura, Toshihiro, 1998. "Partial privatization in mixed duopoly," Journal of Public Economics, Elsevier, vol. 70(3), pages 473-483, December.
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    Cited by:

    1. Saglam, Ismail, 2022. "Pretend-But-Perform Regulation of a Duopoly under Three Competition Modes," MPRA Paper 116767, University Library of Munich, Germany.

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    More about this item

    Keywords

    Price-cap regulations; Cournot competition; Stackelberg competition; Asymmetric equilibria; Endogenous role;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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