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Tight Average Revenue Regulation Can Be Worse Than No Regulation

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  • Cowan, Simon G B

Abstract

Price regulation of a multimarket monopolist, with the cap based on average revenue, can cause welfare to be below the unregulated level. In a model with linear demands and constant but unequal marginal costs, a sufficient condition for this welfare effect is that the cap equals the average revenue that would be earned with marginal cost pricing. Relaxation of the price cap can lower all prices. Welfare with uniform pricing at the level of the price cap can be above or below the average revenue welfare level. Copyright 1997 by Blackwell Publishing Ltd

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Journal of Industrial Economics.

Volume (Year): 45 (1997)
Issue (Month): 1 (March)
Pages: 75-88

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Handle: RePEc:bla:jindec:v:45:y:1997:i:1:p:75-88

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Cited by:
  1. Isamu Matsukawa, 2005. "The Effects of Average Revenue Regulation on Electricity Transmission Investment and Pricing," Industrial Organization 0512009, EconWPA.
  2. Gianni De Fraja & Alberto Iozzi, . "Short Term and Long Term Effects of Price Cap Regulation," Discussion Papers 00/61, Department of Economics, University of York.
  3. Felix Höffler, 2006. "Monopoly Prices versus Ramsey-Boiteux Prices: Are they “Similar”, and: Does it Matter?," Journal of Industry, Competition and Trade, Springer, vol. 6(1), pages 27-43, March.
  4. Breton, Michèle & Kharbach, Mohammed, 2012. "Transportation and storage under a dynamic price cap regulation process," Energy Economics, Elsevier, vol. 34(4), pages 918-929.
  5. Lantz, Björn, 2008. "Hybrid revenue caps and incentive regulation," Energy Economics, Elsevier, vol. 30(3), pages 688-695, May.
  6. World Bank, 2006. "Approaches to Private Participation in Water Services : A Toolkit," World Bank Publications, The World Bank, number 6982, March.

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