We show that a regulator can use diffuse information held by potential entrants in the market as a powerful incentive instrument even when neither government tranfers to firms nor the regulation of entrants is permitted. Optimal regulation involves a menu of price caps and price floors. The latter prevent the incumbent form competing too harshly when entry occurs inducing implicit financial punishments.
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Paper provided by Toulouse - GREMAQ in its series Papers with number
98.492.