A Modified Yardstick Competition Mechanism

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A Modified Yardstick Competition Mechanism

Author Info

Georg Meran
Christian von Hirschhausen

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Abstract

This paper analyzes a modified yardstick competition mechanism (MYC), where the yardstick employed consists of a tariff basket and total costs. This mechanism has a significant information advantage: the regulator "only" needs to observe total costs and output of all firms. The modified yardstick competition mechanism can ensure a socially optimal outcome when allowing for spatial and second degree price discrimination, without increasing the informational requirements. We also introduce regulatory lags in the model. A systematic comparison between the results of traditional yardstick regulation and modified yardstick regulation is carried out. Finally, we discuss the applicability of the mechanism.

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Publisher Info
Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 559.

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Length: 29 p.
Date of creation: 2006
Date of revision:
Publication status: Published in: Journal of Regulatory Economics 35 (2009), 3, 223-245
Handle: RePEc:diw:diwwpp:dp559

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Article
- Georg Meran & Christian Hirschhausen, 2009. "A modified yardstick competition mechanism," Journal of Regulatory Economics, Springer, vol. 35(3), pages 223-245, June. [Downloadable!] (restricted)
Paper
- Georg Meran & Christian von Hirschhausen, 2006. "A Modified Yardstick Competition Mechanism," Working Papers 2006-05, Center for Network Industries and Infrastructure (CNI). [Downloadable!]

Find related papers by JEL classification:
L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
D40 - Microeconomics - - Market Structure and Pricing - - - General

This paper has been announced in the following NEP Reports:

NEP-ALL-2006-03-25 (All new papers)
NEP-COM-2006-03-25 (Industrial Competition)

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

Spence, Michael, 1977. "Nonlinear prices and welfare," Journal of Public Economics, Elsevier, vol. 8(1), pages 1-18, August. [Downloadable!] (restricted)
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Armstrong, M. & Cowan, S. & Vickers, J., 1992. "Nonlinear Pricing and Price Cap Regulation," Economics Series Working Papers 99152, University of Oxford, Department of Economics.
Other versions:
- Amrstong, Mark & Cowan, Simon & Vickers, John, 1995. "Nonlinear pricing and price cap regulation," Journal of Public Economics, Elsevier, vol. 58(1), pages 33-55, September. [Downloadable!] (restricted)
Finsinger, Jorg & Vogelsang, Ingo, 1981. "Alternative Institutional Frameworks for Price Incentive Mechanism," Kyklos, Blackwell Publishing, vol. 34(3), pages 388-404.
Greene, William, 2005. "Reconsidering heterogeneity in panel data estimators of the stochastic frontier model," Journal of Econometrics, Elsevier, vol. 126(2), pages 269-303, June. [Downloadable!] (restricted)
Chakravorty Ujjayant & Hochman Eithan & Zilberman David, 1995. "A Spatial Model of Optimal Water Conveyance," Journal of Environmental Economics and Management, Elsevier, vol. 29(1), pages 25-41, July. [Downloadable!] (restricted)
Goldman, M Barry & Leland, Hayne E & Sibley, David S, 1984. "Optimal Nonuniform Prices," Review of Economic Studies, Blackwell Publishing, vol. 51(2), pages 305-19, April. [Downloadable!] (restricted)
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Other versions:
- Potters, J.J.M. & Rockenbach, B. & Sadrieh, A. & Damme, E.E.C. van, 2003. "Collusion under yardstick competition an experimental study," Discussion Paper 97, Tilburg University, Center for Economic Research. [Downloadable!]
- Potters, J. & Rockenbach, B. & Sadrieh, A., 2003. "Collusion under yardstick competition : an experimental study," Discussion Paper 9, Tilburg University, Tilburg Law and Economic Center. [Downloadable!]
Dag Morten Dalen, 1998. "Yardstick Competition and Investment Incentives," Journal of Economics & Management Strategy, Blackwell Publishing, vol. 7(1), pages 105-126, 03. [Downloadable!] (restricted)
Armstrong, Mark & Sappington, David E.M., 2007. "Recent Developments in the Theory of Regulation," Handbook of Industrial Organization, Elsevier. [Downloadable!] (restricted)
Tangeras, Thomas P., 2002. "Collusion-proof yardstick competition," Journal of Public Economics, Elsevier, vol. 83(2), pages 231-254, February. [Downloadable!] (restricted)
Other versions:
- Tangeras, T.P., 1999. "Collusion-Proof Yardstick Competition," Papers 674, Stockholm - International Economic Studies.
- Tangerås, Thomas P., 1999. "Collusion-Proof Yardstick Competition," Seminar Papers 674, Stockholm University, Institute for International Economic Studies. [Downloadable!]
Kevin Currier, 2005. "Strategic Firm Behavior Under Average-Revenue-Lagged Regulation," Journal of Regulatory Economics, Springer, vol. 27(1), pages 67-79, September. [Downloadable!] (restricted)
Joel Sobel, 1999. "A Reexamination of Yardstick Competition," Journal of Economics & Management Strategy, Blackwell Publishing, vol. 8(1), pages 33-60, 03. [Downloadable!] (restricted)
Other versions:
- Joel Sobel, 1997. "A Re-examination of Yardstick Competition," University of California at San Diego, Economics Working Paper Series 97-25, Department of Economics, UC San Diego. [Downloadable!]

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