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Asymmetric equilibria under price cap regulation

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  • Yasunori Okumura

    (TUMSAT)

Abstract

This study analyzes the effects of a price-cap regulation on market outcomes in Cournot and Stackelberg duopolies. Although two firms are ex-ante identical, there are asymmetric Cournot equilibria as well as the symmetric equilibrium under the price-cap regulation, when the price-cap level is binding. By contrast, the Stackelberg equilibrium is unique and equivalent to the most asymmetric Cournot equilibrium under a binding price-cap level. We present several comparative statics results with respect to the equilibrium outcomes. The main concern of this study is the welfare effect of a change in a price-cap level. We show that when asymmetric Cournot equilibria or the Stackelberg equilibrium are focused on, a reduction in a price-cap level may be socially harmful even if the price-cap level is more than the competitive price.

Suggested Citation

  • Yasunori Okumura, 2017. "Asymmetric equilibria under price cap regulation," Journal of Economics, Springer, vol. 121(2), pages 133-151, June.
    • Handle: RePEc:kap:jeczfn:v:121:y:2017:i:2:d:10.1007_s00712-017-0521-0
    DOI: 10.1007/s00712-017-0521-0
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    References listed on IDEAS

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    7. Matsumura Toshihiro & Okumura Yasunori, 2017. "Privatization Neutrality Theorem in Free Entry Markets," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 17(2), pages 1-9, June.
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    Cited by:

    1. Saglam, Ismail, 2022. "Pretend-But-Perform Regulation of a Duopoly under Three Competition Modes," MPRA Paper 116767, University Library of Munich, Germany.

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    More about this item

    Keywords

    Price-cap regulations; Cournot competition; Stackelberg competition; Asymmetric equilibria; Endogenous role;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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