A modified yardstick competition mechanism
AbstractThis paper analyzes a modified yardstick competition mechanism (MYC), where the yardstick employed consists of a tariff basket and total costs. This mechanism has a significant information advantage: the regulator âonlyâ needs to observe total costs and output of all firms. The modified yardstick competition mech- anism can ensure a socially optimal outcome when allowing for spatial and second degree price discrimination, without increas- ing the informational requirements. We also introduce regulatory lags in the model. A systematic comparison between the results of traditional yardstick regulation and modified yardstick regu- lation is carried out. Finally, we discuss the applicability of the mechanism.
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Bibliographic InfoArticle provided by Springer in its journal Journal of Regulatory Economics.
Volume (Year): 35 (2009)
Issue (Month): 3 (June)
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Web page: http://www.springerlink.com/link.asp?id=100298
Regulation; Yardstick competition; Mechanism design; Information asymmetry; Heterogeneity; L51; L11; D40;
Other versions of this item:
- Georg Meran & Christian von Hirschhausen, 2006. "A Modified Yardstick Competition Mechanism," Working Papers 2006-05, Center for Network Industries and Infrastructure (CNI).
- Georg Meran & Christian von Hirschhausen, 2006. "A Modified Yardstick Competition Mechanism," Discussion Papers of DIW Berlin 559, DIW Berlin, German Institute for Economic Research.
- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
- D40 - Microeconomics - - Market Structure and Pricing - - - General
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