This paper deals with price regulation of a monopolistic distribution grid which sells a license to some retailer. The regulator aims at attaining efficient sale of the license and efficient relationship-specific investments of the agents. The first best can be attained by a sequential regulatory mechanism which gives the seller an option to grant the license but allows the buyer to make counteroffers. This sequential mechanism runs counter to the usual price-cap idea since possible upward but never downward renegotiation of the regulated prices is the vehicle to attain the first best.
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Paper provided by University of Bonn, Germany in its series Discussion Paper Serie A with number
593.
Length: pages Date of creation: Date of revision:
Apr 1999 Handle: RePEc:bon:bonsfa:593
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