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Regulating a monopolist with uncertain costs without transfers

Author

Listed:
  • Amador, Manuel

    (Federal Reserve Bank of Minneapolis)

  • Bagwell, Kyle

    (Stanford University)

Abstract

We analyze the Baron and Myerson (1982) model of regulation under the restriction that transfers are infeasible. Extending techniques from the delegation literature to incorporate an ex-post participation constraint, we report sufficient conditions under which optimal regulation takes the form of price-cap regulation. We establish conditions under which the optimal price cap is set at a level such that no types are excluded and show that exclusion of higher cost types can be optimal when these conditions fail. We also provide conditions for the optimality of price-cap regulation when an ex post participation constraint is present and exclusion is infeasible.

Suggested Citation

  • Amador, Manuel & Bagwell, Kyle, 2022. "Regulating a monopolist with uncertain costs without transfers," Theoretical Economics, Econometric Society, vol. 17(4), November.
    • Handle: RePEc:the:publsh:4691
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    File URL: http://econtheory.org/ojs/index.php/te/article/viewFile/20221719/35311/1044
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    More about this item

    Keywords

    Regulation; price caps; delegation theory;
    All these keywords.

    JEL classification:

    • L43 - Industrial Organization - - Antitrust Issues and Policies - - - Legal Monopolies and Regulation or Deregulation
    • L5 - Industrial Organization - - Regulation and Industrial Policy
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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