IDEAS home Printed from https://ideas.repec.org/a/wly/mgtdec/v44y2023i3p1376-1382.html
   My bibliography  Save this article

Price cap regulation under duopoly

Author

Listed:
  • Pu‐yan Nie
  • Hong‐xing Wen
  • Chan Wang

Abstract

This article captures price cap regulation under duopoly with game theory approaches. First, price cap regulation reduces price difference, output difference, and price dispersion under both Cournot and Stackelberg competition. Second, price cap regulation weakens the advantages of both costs and first‐mover. Third, price cap regulation reduces firms' profits while promotes consumer surplus. Finally, the relationship between the social welfare and price cap regulation is an inverse U‐shape. Therefore, optimal price cap regulation exists.

Suggested Citation

  • Pu‐yan Nie & Hong‐xing Wen & Chan Wang, 2023. "Price cap regulation under duopoly," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(3), pages 1376-1382, April.
    • Handle: RePEc:wly:mgtdec:v:44:y:2023:i:3:p:1376-1382
    DOI: 10.1002/mde.3766
    as

    Download full text from publisher

    File URL: https://doi.org/10.1002/mde.3766
    Download Restriction: no
    File URL: https://libkey.io/10.1002/mde.3766?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Patrick Rey & Jean Tirole, 2019. "Price Caps as Welfare-Enhancing Coopetition," Journal of Political Economy, University of Chicago Press, vol. 127(6), pages 3018-3069.
    2. Collan, Mikael & Savolainen, Jyrki & Lilja, Emma, 2022. "Analyzing the returns and rate of return regulation of Finnish electricity distribution system operators 2015–2019," Energy Policy, Elsevier, vol. 160(C).
    3. Reisinger, Markus & Saurí, Lluís & Zenger, Hans, 2019. "Parallel imports, price controls, and innovation," Journal of Health Economics, Elsevier, vol. 66(C), pages 163-179.
    4. Thomas Bue Bjørner & Jacob Victor Hansen & Astrid Fanger Jakobsen, 2021. "Price cap regulation and water quality," Journal of Regulatory Economics, Springer, vol. 60(2), pages 95-116, December.
    5. Cabral, Luis M B & Riordan, Michael H, 1989. "Incentives for Cost Reduction under Price Cap Regulation," Journal of Regulatory Economics, Springer, vol. 1(2), pages 93-102, June.
    6. Ajay Bhaskarabhatla & Priyatam Anurag & Chirantan Chatterjee & Enrico Pennings, 2021. "How Does Regulation Impact Strategic Repositioning by Firms Across Submarkets? Evidence from the Indian Pharmaceutical Industry," Strategy Science, INFORMS, vol. 6(3), pages 209-227, September.
    7. Ian M. Dobbs, 2004. "Intertemporal price cap regulation under uncertainty," Economic Journal, Royal Economic Society, vol. 114(495), pages 421-440, April.
    8. Weisman, Dennis L., 2021. "What determines the power of a regulatory regime?," Economics Letters, Elsevier, vol. 199(C).
    9. Nie, Pu-yan & Chen, You-hua, 2012. "Duopoly competitions with capacity constrained input," Economic Modelling, Elsevier, vol. 29(5), pages 1715-1721.
    10. Ingo Vogelsang & Jorg Finsinger, 1979. "A Regulatory Adjustment Process for Optimal Pricing by Multiproduct Monopoly Firms," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 157-171, Spring.
    11. Yao Xiong & Judy Xu & Yuexia Gao, 2021. "Does price deregulation increase drug price in China? An interrupted time series analysis," International Journal of Health Planning and Management, Wiley Blackwell, vol. 36(5), pages 1653-1665, September.
    12. David Sappington & Dennis Weisman, 2010. "Price cap regulation: what have we learned from 25 years of experience in the telecommunications industry?," Journal of Regulatory Economics, Springer, vol. 38(3), pages 227-257, December.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ingo Vogelsang, 2012. "Incentive Regulation, Investments and Technological Change," Chapters, in: Gerald R. Faulhaber & Gary Madden & Jeffrey Petchey (ed.), Regulation and the Performance of Communication and Information Networks, chapter 4, Edward Elgar Publishing.
    2. Oliver, Matthew E., 2019. "Pricing flexibility under rate-of-return regulation: Effects on network infrastructure investment," Economic Modelling, Elsevier, vol. 78(C), pages 150-161.
    3. Armstrong, Mark & Sappington, David E.M., 2007. "Recent Developments in the Theory of Regulation," Handbook of Industrial Organization, in: Mark Armstrong & Robert Porter (ed.), Handbook of Industrial Organization, edition 1, volume 3, chapter 27, pages 1557-1700, Elsevier.
    4. repec:kap:iaecre:v:17:y:2011:i:4:p:465-475 is not listed on IDEAS
    5. Dennis L. Weisman, 2019. "The power of regulatory regimes reexamined," Journal of Regulatory Economics, Springer, vol. 56(2), pages 125-148, December.
    6. Chen, You-hua & Chen, Liu-man & Mishra, Ashok K., 2021. "Information, Capacity Constraints and Quality on Firms Competition," 2021 ASAE 10th International Conference (Virtual), January 11-13, Beijing, China 329427, Asian Society of Agricultural Economists (ASAE).
    7. Graeme Guthrie, 2006. "Regulating Infrastructure: The Impact on Risk and Investment," Journal of Economic Literature, American Economic Association, vol. 44(4), pages 925-972, December.
    8. Nykamp, Stefan & Andor, Mark & Hurink, Johann L., 2012. "‘Standard’ incentive regulation hinders the integration of renewable energy generation," Energy Policy, Elsevier, vol. 47(C), pages 222-237.
    9. Lemus, Ana B. & Moreno, Diego, 2017. "Price caps with capacity precommitment," International Journal of Industrial Organization, Elsevier, vol. 50(C), pages 131-158.
    10. Cullmann, Astrid & Nieswand, Maria, 2016. "Regulation and investment incentives in electricity distribution: An empirical assessment," Energy Economics, Elsevier, vol. 57(C), pages 192-203.
    11. Anna Pechan, 2014. "Which Incentives Does Regulation Give to Adapt Network Infrastructure to Climate Change? - A German Case Study," Working Papers V-365-14, University of Oldenburg, Department of Economics, revised May 2014.
    12. Gabriel Godofredo Fiuza de Bragança, 2005. "A Remuneração de Redes nas Telecomunicações e a Nova Orientação a Custos: Avaliação e Perspectivas Para a Telefonia Fixa Brasileira," Discussion Papers 1104, Instituto de Pesquisa Econômica Aplicada - IPEA.
    13. Michael Hellwig & Dominik Schober & Luis Cabral, 2018. "Incentive Regulation: Evidence From German Electricity Networks," Working Papers 18-03, New York University, Leonard N. Stern School of Business, Department of Economics.
    14. Drew Fudenberg, 2015. "Tirole's Industrial Regulation and Organization Legacy in Economics," Scandinavian Journal of Economics, Wiley Blackwell, vol. 117(3), pages 771-800, July.
    15. Guthrie, Graeme, 2006. "Regulating Infrastructure: The Impact on Risk and Investment," Working Paper Series 18946, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.
    16. Paula Sarmento & António Brandão, 2007. "Entry Deterrence and Entry Accommodation Strategies of a Multiproduct Firm Regulated with Dynamic Price Cap," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 13(1), pages 19-34, February.
    17. Valentini, Edilio, 2015. "Indirect taxation, public pricing and price cap regulation: A synthesis," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 9, pages 1-39.
    18. Willems, Bert & Zwart, Gijsbert, 2016. "Regulatory Holidays and Optimal Network Expansion," Discussion Paper 2016-015, Tilburg University, Center for Economic Research.
    19. Paul L. Joskow, 2014. "Incentive Regulation in Theory and Practice: Electricity Distribution and Transmission Networks," NBER Chapters, in: Economic Regulation and Its Reform: What Have We Learned?, pages 291-344, National Bureau of Economic Research, Inc.
    20. John Bennett & Ioana Chioveanu, 2019. "Pro‐Consumer Price Ceilings under Regulatory Uncertainty," Scandinavian Journal of Economics, Wiley Blackwell, vol. 121(4), pages 1757-1784, October.
    21. Kevin Currier, 2005. "Strategic Firm Behavior Under Average-Revenue-Lagged Regulation," Journal of Regulatory Economics, Springer, vol. 27(1), pages 67-79, September.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:mgtdec:v:44:y:2023:i:3:p:1376-1382. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www3.interscience.wiley.com/cgi-bin/jhome/7976 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.