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Monopoly Behavior, Decentralized Regulation, and Contestable Markets: An Experimental Evaluation

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Author Info
Glenn W. Harrison
Michael McKee

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Abstract

This study provides a comparative experimental evaluation of several alternative approaches to the (single-product) monopoly problem. We contrast incentive-compatible decentralized regulatory mechanisms with notions of market contestability in a decreasing-cost environment. The decentralized regulatory mechanisms are found to be significantly more effective at restraining monopoly power than is allowing direct contestability. But the regulatory mechanisms examined require that the regulatory agency know the market demand curve (though not the industry cost curve). Since this is significantly more information than is required to implement direct contestability, an interesting tradeoff is suggested: does the greater efficiency in monopoly restraint provided by the regulatory mechanism relative to direct contestability outweigh the former's greater informational requirements?

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File URL: http://links.jstor.org/sici?sici=0741-6261%28198521%2916%3A1%3C51%3AMBDRAC%3E2.0.CO%3B2-1&origin=repec
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Publisher Info
Article provided by The RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 16 (1985)
Issue (Month): 1 (Spring)
Pages: 51-69
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Handle: RePEc:rje:randje:v:16:y:1985:i:spring:p:51-69

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  1. Switgard Feuerstein, 2005. "Collusion in Industrial Economics—A Survey," Journal of Industry, Competition and Trade, Springer, vol. 5(3), pages 163-198, December. [Downloadable!] (restricted)
  2. Jim Engle-Warnick & Bradley Ruffle, 2002. "Buyer Countervailing Power versus Monopoly Power: Evidence from Experimental Posted-Offer Markets," Economics Papers 2002-W14, Economics Group, Nuffield College, University of Oxford. [Downloadable!]
  3. Nelson, Robert G. & Beil, Richard O., Jr., 1994. "Pricing Strategy Under Monopoly Conditions: An Experiment For The Classroom," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 26(01), July. [Downloadable!]
  4. Jamie Brown-Kruse & Steven R Elliot & Rob Godby, 1995. "Strategic Manipulation of Pollution Permit Markets: An Experimental Approach," Department of Economics Working Papers 1995-03, McMaster University. [Downloadable!]
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