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Myopic Firm Behavior Thwarting Intent of Average-Revenue-Lagged Regulation

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  • Brian K. Jackson

    (Oklahoma Wesleyan University)

Abstract

Recent papers have demonstrated that Average-Revenue-Lagged regulation (ARL) as applied to the single-product / multi-market firm is susceptible to strategic manipulation even leading to global profit maximum pricing. This paper illustrates that myopic behavior within ARL under appropriate conditions on product demands and production costs can also produce profit maximum prices thus undermining obvious regulatory intent. The possibility of this outcome is another significant criticism that may be leveled against this particular regulatory approach.

Suggested Citation

  • Brian K. Jackson, 2007. "Myopic Firm Behavior Thwarting Intent of Average-Revenue-Lagged Regulation," Journal of Economic Insight, Missouri Valley Economic Association, vol. 33(1), pages 29-43.
    • Handle: RePEc:mve:journl:v:33:y:2007:i:1:p:29-43
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    More about this item

    JEL classification:

    • L43 - Industrial Organization - - Antitrust Issues and Policies - - - Legal Monopolies and Regulation or Deregulation
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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