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Tight Average Revenue Regulation Can Be Worse Than No Regulation

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Author Info
Cowan, Simon G B

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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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Publisher Info
Article provided by Blackwell Publishing 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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  1. Isamu Matsukawa, 2005. "The Effects of Average Revenue Regulation on Electricity Transmission Investment and Pricing," Industrial Organization 0512009, EconWPA. [Downloadable!]
    Other versions:
  2. 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. [Downloadable!] (restricted)
  3. 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. [Downloadable!]
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This page was last updated on 2009-12-19.

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