Regulatory design under asymmetric information about demand
AbstractIn this paper we compare the costs of two regulatory policies about the entry of new firms. We consider an incumbent firm that has more information about the market demand than the regulator. Then, the incumbent firm can use this advantage to persuade the regulator to make entry more difficult. With the first regulatory policy the regulator uses the incumbent price pre-regulation to get information about the demand. With the second regulatory policy the regulator design a mechanism to motivate the incumbent firm to price truthfully. We conclude that, for enough high values of the probability of low demand, the welfare is higher with the second (more active) regulatory policy.
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Bibliographic InfoPaper provided by Universidade do Porto, Faculdade de Economia do Porto in its series CEF.UP Working Papers with number 0802.
Length: 20 pages
Date of creation: May 2008
Date of revision:
asymmetric information; entry regulation; signalling; adverse selection;
Find related papers by JEL classification:
- C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-05-24 (All new papers)
- NEP-BEC-2008-05-24 (Business Economics)
- NEP-COM-2008-05-24 (Industrial Competition)
- NEP-CTA-2008-05-24 (Contract Theory & Applications)
- NEP-ENT-2008-05-24 (Entrepreneurship)
- NEP-IND-2008-05-24 (Industrial Organization)
- NEP-MIC-2008-05-24 (Microeconomics)
- NEP-REG-2008-05-24 (Regulation)
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