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Regulating Oligopolistic Industries: A Generalized Incentive Scheme

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  • Schwermer, Sylvia

Abstract

This paper deals with the design of regulatory mechanisms for oligopolistic industries. The proposed incentive scheme consists of two parts: a subsidy depending upon a firm's contribution to an equilibrium price reduction, and a tax equal to the profit of the previous period. This mechanism is as effective in regulating oligopolies as the well-known incremental surplus subsidy scheme in a monopoly framework. The proposed scheme provides appropriate incentives to enforce competitive behavior in a Cournot oligopoly. The scheme is welfare improving even if firms collude. Copyright 1994 by Kluwer Academic Publishers

Suggested Citation

  • Schwermer, Sylvia, 1994. "Regulating Oligopolistic Industries: A Generalized Incentive Scheme," Journal of Regulatory Economics, Springer, vol. 6(1), pages 97-108, February.
  • Handle: RePEc:kap:regeco:v:6:y:1994:i:1:p:97-108
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    Cited by:

    1. Hassan Benchekroun & Ngo Van Long, 2008. "A Class Of Performance-Based Subsidy Rules," The Japanese Economic Review, Japanese Economic Association, vol. 59(4), pages 381-400.
    2. Prieger, James E. & Sanders, Nicholas J., 2012. "Verifiable and non-verifiable anonymous mechanisms for regulating a polluting monopolist," Journal of Environmental Economics and Management, Elsevier, vol. 64(3), pages 410-426.
    3. Corchón Díaz, Luis Carlos & Marcos, Félix, 2010. "Price regulation in oligopoly," UC3M Working papers. Economics we100101, Universidad Carlos III de Madrid. Departamento de Economía.
    4. Lantz, Bjorn, 2007. "A non-Bayesian piecewise linear approximation adjustment process for incentive regulation," Information Economics and Policy, Elsevier, vol. 19(1), pages 95-101, March.
    5. Marcos, Félix & Corchón Díaz, Luis Carlos, 2011. "Price regulation in oligopolistic markets," UC3M Working papers. Economics 13443, Universidad Carlos III de Madrid. Departamento de Economía.
    6. Armstrong, Mark & Sappington, David E.M., 2007. "Recent Developments in the Theory of Regulation," Handbook of Industrial Organization, Elsevier.

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