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Regulating a Dominant Firm: Unknown Demand and Industry Structure

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  • Gary Biglaiser
  • Ching-to Albert Ma

Abstract

In this article, we study the optimal regulation of a dominant firm when an unregulated firm actively competes. Generally, the existence of an active rival imposes new and binding constraints on regulatory problems. We characterize optimal policies both when demands are known (complete information) and unknown (incomplete information) to the regulator. Optimal policies under complete information may set the price at the dominant firm above or below its marginal cost. Optimal policies under incomplete information may be either pooling or separating, constant over a range of the prior distribution of the firm's private information, and leave no information rent to the firm.

Suggested Citation

  • Gary Biglaiser & Ching-to Albert Ma, 1995. "Regulating a Dominant Firm: Unknown Demand and Industry Structure," RAND Journal of Economics, The RAND Corporation, vol. 26(1), pages 1-19, Spring.
    • Handle: RePEc:rje:randje:v:26:y:1995:i:spring:p:1-19
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    Cited by:

    1. Anastassios Gentzoglanis, 2002. "Privatization, Investment and Efficiency in the Telecommunications Industry: Theory and Empirical Evidence from MENA Countries," Working Papers 0230, Economic Research Forum, revised 10 Oct 2002.
    2. Reisinger, Markus & Saurí, Lluís & Zenger, Hans, 2019. "Parallel imports, price controls, and innovation," Journal of Health Economics, Elsevier, vol. 66(C), pages 163-179.
    3. Ma, Ching-to Albert, 2004. "Public rationing and private cost incentives," Journal of Public Economics, Elsevier, vol. 88(1-2), pages 333-352, January.
    4. Cécile Aubert & Jérôme Pouyet, 2006. "Incomplete regulation, market competition and collusion," Review of Economic Design, Springer;Society for Economic Design, vol. 10(2), pages 113-142, August.
    5. Anton, James J. & Vander Weide, James H. & Vettas, Nikolaos, 2002. "Entry auctions and strategic behavior under cross-market price constraints," International Journal of Industrial Organization, Elsevier, vol. 20(5), pages 611-629, May.
    6. Biancini, Sara, 2018. "Regulating national firms in a common market under asymmetric information," Economic Modelling, Elsevier, vol. 68(C), pages 450-460.
    7. De Fraja, Gianni, 1997. "Pricing and entry in regulated industries: The role of regulatory design," Journal of Public Economics, Elsevier, vol. 64(2), pages 259-278, May.
    8. repec:dau:papers:123456789/13654 is not listed on IDEAS
    9. Armstrong, Mark & Sappington, David E.M., 2007. "Recent Developments in the Theory of Regulation," Handbook of Industrial Organization, in: Mark Armstrong & Robert Porter (ed.), Handbook of Industrial Organization, edition 1, volume 3, chapter 27, pages 1557-1700, Elsevier.

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