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When Can Regulation Defer To Competition For Constraining Market Power?: Complements And Critical Elasticities

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  • Dennis L. Weisman

Abstract

When can regulation defer to competition for imposing price discipline? We show that high price–cost margins, reflecting scale/scope economies, in combination with demand complementarities serve to constrain the market power of the (de)regulated firm. Because price increases that produce even small reductions in demand can generate significant losses in contribution to joint/common costs, relatively modest amounts of competition may be sufficient for deregulation. To assist policymakers in their deliberations, a comparison of firm-specific price elasticities and critical price elasticities can be used to determine whether the (de)regulated firm would have incentives to raise prices post-deregulation.

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  • Dennis L. Weisman, 2006. "When Can Regulation Defer To Competition For Constraining Market Power?: Complements And Critical Elasticities," Journal of Competition Law and Economics, Oxford University Press, vol. 2(1), pages 101-112.
    • Handle: RePEc:oup:jcomle:v:2:y:2006:i:1:p:101-112.
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    File URL: http://hdl.handle.net/10.1093/joclec/nhl005
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    Cited by:

    1. Zimmerman, Paul R. & Carlson, Julie A., 2012. "Critical import supply elasticities and the ‘imports-as-market-discipline’ hypothesis," Journal of Economic Behavior & Organization, Elsevier, vol. 84(1), pages 345-354.
    2. David Sappington & Dennis Weisman, 2012. "Regulating regulators in transitionally competitive markets," Journal of Regulatory Economics, Springer, vol. 41(1), pages 19-40, February.
    3. Pollitt, Michael, 2010. "Does electricity (and heat) network regulation have anything to learn from fixed line telecoms regulation?," Energy Policy, Elsevier, vol. 38(3), pages 1360-1371, March.
    4. Hongjai Rhee & Minsoo Park, 2011. "Fixed-to-mobile call substitution and telephony market definition in Korea," Journal of Regulatory Economics, Springer, vol. 40(2), pages 198-218, October.
    5. Zimmerman, Paul R. & Carlson, Julie A., 2010. "Critical import supply elasticities and the ‘imports-as-market-discipline’ hypothesis," MPRA Paper 27848, University Library of Munich, Germany.

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