Can Poorly Informed Regulators Hinder Competition?
AbstractThis paper considers an entry-deterrence game in which environmental policy is set without perfectly observing the incumbent firm's costs. We investigate if regulators, who can have an informational advantage relative to the potential entrant, support entry-deterring practices. The paper demonstrates that, while entry-deterring equilibria only emerge under restrictive conditions when the regulator is perfectly informed, these equilibria arise under larger settings as he becomes uninformed. Furthermore, we show that the regulator is willing to support the incumbent?s entry-deterring practices regardless of his degree of information if entry costs are sufficiently high. However, when entry costs are lower, the regulator only sustains this type of practices if he is poorly informed.
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Bibliographic InfoPaper provided by School of Economic Sciences, Washington State University in its series Working Papers with number 2013-3.
Length: 34 pages
Date of creation: Feb 2013
Date of revision:
Entry deterrence; Signaling; Emission fees; Informational advantage;
Find related papers by JEL classification:
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
- L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
- Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics
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