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Regulation as a Bargaining Process: Negotiation over Price and Cost-Reducing Investments

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  • Scarpa, Carlo

Abstract

This paper develops the idea that industry regulation can be treated as a bargaining between a firm and the public authority, and illustrates some consequences of this formulation. The author investigates a typical regulatory problem where a firm chooses a cost-reducing investment before price is subject to regulation. In a standard scheme, investment will be lower than required by efficiency. If the possibility of negotiation is taken into account, the author then shows that this undercapitalization result can be reversed. Indeed, with sunk costs excessive capitalization can be observed. Copyright 1994 by Royal Economic Society.

Suggested Citation

  • Scarpa, Carlo, 1994. "Regulation as a Bargaining Process: Negotiation over Price and Cost-Reducing Investments," Oxford Economic Papers, Oxford University Press, vol. 46(3), pages 357-365, July.
    • Handle: RePEc:oup:oxecpp:v:46:y:1994:i:3:p:357-65
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    Cited by:

    1. Raffaele Fiocco & Mario Gilli, 2012. "Bargaining and Collusion in a Regulatory Model," Chapters, in: Joseph E. Harrington Jr & Yannis Katsoulacos (ed.), Recent Advances in the Analysis of Competition Policy and Regulation, chapter 12, Edward Elgar Publishing.
    2. Francesc Trillas, 2004. "The structure of corporate ownership in privatized utilities," Investigaciones Economicas, Fundación SEPI, vol. 28(2), pages 257-284, May.
    3. José Pineda & Francisco Rodríguez, 2006. "The Political Economy of Investment in Human Capital," Economics of Governance, Springer, vol. 7(2), pages 167-193, May.
    4. Finkelshtain, Israel & Kislev, Yoav, 1996. "Economic Regulation and Political Influence," Working Papers 232692, Hebrew University of Jerusalem, Center for Agricultural Economic Research.
    5. Raffaele Fiocco & Mario Gilli, 2016. "Bargaining and collusion in a regulatory relationship," Journal of Economics, Springer, vol. 117(2), pages 93-116, March.
    6. Montolio, Daniel & Trillas, Francesc, 2013. "Regulatory federalism and industrial policy in broadband telecommunications," Information Economics and Policy, Elsevier, vol. 25(1), pages 18-31.

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