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Self-regulation under asymmetric cost information

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  • Ismail Saglam

    (TOBB University of Economics and Technology)

Abstract

In this paper, we study how a monopolistic firm with unknown costs may behave under the threat of regulation. To this aim, we integrate the self-regulation model of Glazer and McMillan (Q J Econ 107(3):1089–1099, 1992) with the optimal regulatory mechanism devised by Baron and Myerson (Econometrica 50(4):911–930, 1982) for the case of asymmetric information. Simulating the equilibrium outcome of our integrated model for a wide range of parameter values, we show among many results that the firm threatened with regulation always constrains its price; moreover, the price the firm charges under the threat of regulation can be even lower than the price it has to charge when it is regulated.

Suggested Citation

  • Ismail Saglam, 2022. "Self-regulation under asymmetric cost information," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 49(2), pages 335-368, June.
    • Handle: RePEc:spr:epolin:v:49:y:2022:i:2:d:10.1007_s40812-021-00191-0
    DOI: 10.1007/s40812-021-00191-0
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    1. Laffont, Jean-Jacques & Tirole, Jean, 1986. "Using Cost Observation to Regulate Firms," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 614-641, June.
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    7. Amihai Glazer & Henry McMillan, 1992. "Pricing by the Firm Under Regulatory Threat," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 107(3), pages 1089-1099.
    8. Laffont,Jean-Jacques, 2005. "Regulation and Development," Cambridge Books, Cambridge University Press, number 9780521840187, January.
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    Cited by:

    1. Ismail Saglam, 2023. "Incentives of a monopolist for innovation under regulatory threat," Economics of Governance, Springer, vol. 24(1), pages 41-66, March.

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    More about this item

    Keywords

    Monopoly; Regulation; Self-regulation; Asymmetric information;
    All these keywords.

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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