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Price-Capping regulation as a protectionist strategy in developing countries

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  • Lawrence, Peter

    (Keele University)

  • Arijit Mukherjee

Abstract

In developing countries undergoing liberalising reforms, there are typically local incumbents facing the loss of protection. Strategic lobbying by such firms for a price-capping regulatory regime can deter entry. We show that a regulatory price can be set such that the net profit of the entrant is lower than the entry cost thus deterring entry and that it is possible for the profit of the incumbent to be greater under regulation than under unregulated duopoly. We consider the case of multiple incumbents threatened by entry and also extend our analysis to incorporate lobbying by the entrant.

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Bibliographic Info

Paper provided by Royal Economic Society in its series Royal Economic Society Annual Conference 2003 with number 132.

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Date of creation: 04 Jun 2003
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Handle: RePEc:ecj:ac2003:132

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Keywords: entrant; incumbent; lobbying; price-capping regulation;

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  1. A. Aggarwal, 2002. "Liberalisation, Multinational Enterprises and Export Performance: Evidence from Indian Manufacturing," Journal of Development Studies, Taylor & Francis Journals, vol. 38(3), pages 119-137.
  2. Brainard, S. Lael & Verdier, Thierry, 1997. "The political economy of declining industries: Senescent industry collapse revisited," Journal of International Economics, Elsevier, vol. 42(1-2), pages 221-237, February.
  3. M. Patibandla, 2002. "Policy Reforms and Evolution of Market Structure in an Emerging Economy: The Case of India," Journal of Development Studies, Taylor & Francis Journals, vol. 38(3), pages 95-118.
  4. Braillard, S. Lael & Verdier, Thierry, 1994. "Lobbying and adjustment in declining industries," European Economic Review, Elsevier, vol. 38(3-4), pages 586-595, April.
  5. Michaelis, Peter, 1994. "Regulate us, please!: On strategic lobbying in cournot-nash oligopoly," Kiel Working Papers 626, Kiel Institute for the World Economy.
  6. Koski, Heli A. & Majumdar, Sumit K., 2002. "Paragons of virtue? Competitor entry and the strategies of incumbents in the U.S. local telecommunications industry," Information Economics and Policy, Elsevier, vol. 14(4), pages 453-480, December.
  7. Schmalensee, Richard, 1987. "Competitive advantage and collusive optima," International Journal of Industrial Organization, Elsevier, vol. 5(4), pages 351-367.
  8. Alberto Iozzi, 2001. "Strategic pricing and entry deterrence under price-cap regulation," Journal of Economics, Springer, vol. 74(3), pages 283-300, October.
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