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Welfare and Product Testing by a Regulated Monopolist

Author

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  • Campbell, Tim S
  • Chan, Yuk-shee
  • Marino, Anthony M

Abstract

This paper studies a monopoly firm with the ability to conduct costly premarket testing of its product in order to predict how safe this product is to consume. While there are private incentives to test, the amount of testing effort supplied by a monopolist need not be optimal. In a model which allows for an imperfect system of liability, the authors characterize and compare the allocations of testing effort and output at the full social optimum, the pure monopoly solution, and the second-best regulated optimum wherein the regulator chooses testing effort and the monopolist chooses output and price. Copyright 1991 by Kluwer Academic Publishers

Suggested Citation

  • Campbell, Tim S & Chan, Yuk-shee & Marino, Anthony M, 1991. "Welfare and Product Testing by a Regulated Monopolist," Journal of Regulatory Economics, Springer, vol. 3(1), pages 57-68, March.
  • Handle: RePEc:kap:regeco:v:3:y:1991:i:1:p:57-68
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    References listed on IDEAS

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    1. Brown, Stephen J. & Warner, Jerold B., 1985. "Using daily stock returns : The case of event studies," Journal of Financial Economics, Elsevier, vol. 14(1), pages 3-31, March.
    2. Pritamani, Mahesh & Singal, Vijay, 2001. "Return predictability following large price changes and information releases," Journal of Banking & Finance, Elsevier, vol. 25(4), pages 631-656, April.
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    4. Ajinkya, Bipin B. & Jain, Prem C., 1989. "The behavior of daily stock market trading volume," Journal of Accounting and Economics, Elsevier, vol. 11(4), pages 331-359, November.
    5. repec:bla:joares:v:6:y:1968:i::p:67-92 is not listed on IDEAS
    6. Bushee, Brian J. & Matsumoto, Dawn A. & Miller, Gregory S., 2003. "Open versus closed conference calls: the determinants and effects of broadening access to disclosure," Journal of Accounting and Economics, Elsevier, vol. 34(1-3), pages 149-180, January.
    7. Werner Antweiler & Murray Z. Frank, 2004. "Is All That Talk Just Noise? The Information Content of Internet Stock Message Boards," Journal of Finance, American Finance Association, vol. 59(3), pages 1259-1294, June.
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    9. J. Andrew Coutts & Terence Mills & Jennifer Roberts, 1995. "Misspecification of the market model: the implications for event studies," Applied Economics Letters, Taylor & Francis Journals, vol. 2(5), pages 163-165.
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    11. Copeland, Thomas E & Galai, Dan, 1983. " Information Effects on the Bid-Ask Spread," Journal of Finance, American Finance Association, vol. 38(5), pages 1457-1469, December.
    12. A. Craig MacKinlay, 1997. "Event Studies in Economics and Finance," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 13-39, March.
    13. Jennifer Conrad & Bradford Cornell & Wayne R. Landsman, 2002. "When Is Bad News Really Bad News?," Journal of Finance, American Finance Association, vol. 57(6), pages 2507-2532, December.
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