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Entry Deterrence and Entry Accommodation Strategies of a Multiproduct Firm Regulated with Dynamic Price Cap

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  • Paula Sarmento

    ()
    (CETE, Faculdade de Economia, Universidade do Porto)

  • António Brandão

    ()
    (CETE, Faculdade de Economia, Universidade do Porto)

Abstract

In this paper we study the way a multiproduct firm, regulated through a dynamic price cap, can develop a price strategy that uses the regulatory policy to deter entry. We consider a firm that initially operates as a monopolist in two markets but faces potential entry in one of the markets. We conclude that the regulated firm can have the incentive to block the entry. This strategy leads to the reduction of the price in both markets. However, the final effect of the entry deterrence strategy on total consumer surplus is not always positive.

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Bibliographic Info

Paper provided by Universidade do Porto, Faculdade de Economia do Porto in its series CEF.UP Working Papers with number 0502.

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Length: 33 pages
Date of creation: May 2005
Date of revision:
Handle: RePEc:por:cetedp:0502

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Keywords: price cap regulation; entry;

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References

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  1. Ingo Vogelsang, 2003. "Price Regulation of Access to Telecommunications Networks," Journal of Economic Literature, American Economic Association, vol. 41(3), pages 830-862, September.
  2. 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.
  3. Kang, Jaesung & Weisman, Dennis L. & Zhang, Mingyuan, 2000. "Do consumers benefit from tighter price cap regulation?," Economics Letters, Elsevier, vol. 67(1), pages 113-119, April.
  4. Brennan, Timothy J, 1989. "Regulating by Capping Prices," Journal of Regulatory Economics, Springer, vol. 1(2), pages 133-47, June.
  5. Foreman, R. Dean, 1995. "Pricing incentives under price-cap regulation," Information Economics and Policy, Elsevier, vol. 7(4), pages 331-351, December.
  6. Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121743, December.
  7. Sabom Chang, 2004. "Ambiguous Social Welfare Effects of Price Regulation Under Imperfect Competition," Journal of Economics, Springer, vol. 81(1), pages 53-60, 01.
  8. Law, Peter J, 1997. "Welfare Effects of Pricing in Anticipation of Laspeyres Price-Cap Regulation: An Example," Bulletin of Economic Research, Wiley Blackwell, vol. 49(1), pages 17-27, January.
  9. Vogelsang, Ingo, 2002. "Incentive Regulation and Competition in Public Utility Markets: A 20-Year Perspective," Journal of Regulatory Economics, Springer, vol. 22(1), pages 5-27, July.
  10. Armstrong, Mark, 2006. "Price discrimination," MPRA Paper 4693, University Library of Munich, Germany.
  11. 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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Cited by:
  1. Kevin Currier, 2011. "Optimal Pricing and Entry Rules When a Regulated Dominant Firm Faces a Competitive Fringe," International Advances in Economic Research, Springer, vol. 17(4), pages 465-475, November.

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