IDEAS home Printed from https://ideas.repec.org/p/por/cetedp/0802.html
   My bibliography  Save this paper

Regulatory design under asymmetric information about demand

Author

Listed:
  • Paula Sarmento

    (CETE and Faculty of Economics, University of Porto)

  • António Brandão

    (CETE and Faculty of Economics, University of Porto)

Abstract

In this paper we compare the costs of two regulatory policies about the entry of new firms. We consider an incumbent firm that has more information about the market demand than the regulator. Then, the incumbent firm can use this advantage to persuade the regulator to make entry more difficult. With the first regulatory policy the regulator uses the incumbent price pre-regulation to get information about the demand. With the second regulatory policy the regulator design a mechanism to motivate the incumbent firm to price truthfully. We conclude that, for enough high values of the probability of low demand, the welfare is higher with the second (more active) regulatory policy.

Suggested Citation

  • Paula Sarmento & António Brandão, 2008. "Regulatory design under asymmetric information about demand," CEF.UP Working Papers 0802, Universidade do Porto, Faculdade de Economia do Porto.
    • Handle: RePEc:por:cetedp:0802
    as

    Download full text from publisher

    File URL: http://www.fep.up.pt/investigacao/cete/papers/DP0802.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. C.C. von Weizsaker, 1980. "A Welfare Analysis of Barriers to Entry," Bell Journal of Economics, The RAND Corporation, vol. 11(2), pages 399-420, Autumn.
    2. Simeon Djankov & Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer, 2002. "The Regulation of Entry," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(1), pages 1-37.
    3. Milgrom, Paul & Roberts, John, 1982. "Limit Pricing and Entry under Incomplete Information: An Equilibrium Analysis," Econometrica, Econometric Society, vol. 50(2), pages 443-459, March.
    4. Paula Sarmento, 2003. "Entry Regulation under Asymmetric Information about Demand: A Signalling Model Approach," CEF.UP Working Papers 0304, Universidade do Porto, Faculdade de Economia do Porto.
    5. 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.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Clemens Lutz & Ron Kemp & S. Gerhard Dijkstra, 2010. "Perceptions regarding strategic and structural entry barriers," Small Business Economics, Springer, vol. 35(1), pages 19-33, July.
    2. Tedi Skiti, 2020. "Institutional entry barriers and spatial technology diffusion: Evidence from the broadband industry," Strategic Management Journal, Wiley Blackwell, vol. 41(7), pages 1336-1361, July.
    3. Ewa Balcerowicz & Oleg Ustenko, 2006. "Regulatory Policy in Ukraine: Current State and What Should be Done to Improve the Business Environment," CASE Network Studies and Analyses 0324, CASE-Center for Social and Economic Research.
    4. : Krzysztof Marczewski & Krzysztof Szczygielski, 2006. "Growth and Performance Factors in Polish Manufacturing Firms in 1998-2003 in the Light of Survey Data," CASE Network Studies and Analyses 0323, CASE-Center for Social and Economic Research.
    5. Kotsios, Panayotis, 2010. "Regulatory Barriers to Entry in Industrial Sectors," MPRA Paper 27976, University Library of Munich, Germany.
    6. Henk Kox & George van Leeuwen, 2012. "Dynamic market selection in EU business services," CPB Discussion Paper 210, CPB Netherlands Bureau for Economic Policy Analysis.
    7. Kyle Bagwell & Garey Ramey, 1988. "Advertising and Limit Pricing," RAND Journal of Economics, The RAND Corporation, vol. 19(1), pages 59-71, Spring.
    8. Kowalewski, Oskar, 2023. "Organizational mode choices of multinational banks abroad," Global Finance Journal, Elsevier, vol. 57(C).
    9. Francesco Trebbi & Miao Ben Zhang, 2022. "The Cost of Regulatory Compliance in the United States," NBER Working Papers 30691, National Bureau of Economic Research, Inc.
    10. Aidis, Ruta & Adachi, Yuko, 2007. "Russia: Firm entry and survival barriers," Economic Systems, Elsevier, vol. 31(4), pages 391-411, December.
    11. Sébastien Marchand, 2012. "Legal Origin, Colonial Origins and Deforestation," Economics Bulletin, AccessEcon, vol. 32(2), pages 1653-1670.
    12. Francesco Caselli & Nicola Gennaioli, 2008. "Economics and Politics of Alternative Institutional Reforms," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 123(3), pages 1197-1250.
    13. Nilanjan Banik & John Gilbert, 2010. "Regional Integration and Trade Costs in South Asia," Chapters, in: Douglas H. Brooks & Susan F. Stone (ed.), Trade Facilitation and Regional Cooperation in Asia, chapter 4, Edward Elgar Publishing.
    14. Haidar, Jamal Ibrahim, 2012. "The impact of business regulatory reforms on economic growth," Journal of the Japanese and International Economies, Elsevier, vol. 26(3), pages 285-307.
    15. Robert MacCulloch & Silvia Pezzini, 2010. "The Roles of Freedom, Growth, and Religion in the Taste for Revolution," Journal of Law and Economics, University of Chicago Press, vol. 53(2), pages 329-358, May.
    16. Rakesh Sambharya & Martina Musteen, 2014. "Institutional environment and entrepreneurship: An empirical study across countries," Journal of International Entrepreneurship, Springer, vol. 12(4), pages 314-330, December.
    17. Masashige Hamano & Pierre M. Picard, 2017. "Extensive and intensive margins and exchange rate regimes," Canadian Journal of Economics, Canadian Economics Association, vol. 50(3), pages 804-837, August.
    18. Dennis, Allen & Shepherd, Ben, 2007. "Trade costs, barriers to entry, and export diversification in developing countries," Policy Research Working Paper Series 4368, The World Bank.
    19. Iscr, 2001. "Open to enterprise," Competition & Regulation Times 374006, New Zealand Institute for the Study of Competition and Regulation.
    20. Ahmet Faruk Aysan & …mer Faruk Baykal & Marie-Ange Véganzonès–Varoudakis, 2011. "The Effects of Convergence in Governance on Capital Accumulation in the Black Sea Economic Cooperation Countries," Chapters, in: Mehmet Ugur & David Sunderland (ed.), Does Economic Governance Matter?, chapter 6, Edward Elgar Publishing.

    More about this item

    Keywords

    asymmetric information; entry regulation; signalling; adverse selection;
    All these keywords.

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:por:cetedp:0802. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Ana Bonanca (email available below). General contact details of provider: https://edirc.repec.org/data/fepuppt.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.