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Monopoly regulation in the presence of consumer demand-reduction

Author

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  • Sato, Susumu
Abstract
I study a monopoly regulation in the setting where consumers can engage in demand-reducing investments. I first show that, when the regulator ignores the consumers’ investments, the excess investment occurs. Next, I analyze the case where the regulator takes consumers’ investments into account and compare the optimal policy under asymmetric information with the first-best policy. Optimal policy results in higher average price, higher level of consumer investment, but lower prices for efficient firms, compared to the first-best.

Suggested Citation

  • Sato, Susumu, 2018. "Monopoly regulation in the presence of consumer demand-reduction," Economics Letters, Elsevier, vol. 173(C), pages 61-64.
    • Handle: RePEc:eee:ecolet:v:173:y:2018:i:c:p:61-64
    DOI: 10.1016/j.econlet.2018.09.017
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    References listed on IDEAS

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    1. Stéphane Auray & Thomas Mariotti & Fabien Moizeau, 2011. "Dynamic regulation of quality," RAND Journal of Economics, RAND Corporation, vol. 42(2), pages 246-265, June.
    2. Matsumura, Toshihiro & Yamagishi, Atsushi, 2017. "Long-run welfare effect of energy conservation regulation," Economics Letters, Elsevier, vol. 154(C), pages 64-68.
    3. Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121743, April.
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    More about this item

    Keywords

    Monopoly regulation; Asymmetric information; Demand-reducing investments;
    All these keywords.

    JEL classification:

    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L97 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Utilities: General

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