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Prices vs. Quantities and Delegating Price Authority to a Monopolist

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  • Paul Chen

Abstract

This paper examines the desirability of allowing a monopolist to determine the market price. We find that none of the regulatory mechanisms previously discussed in the "prices vs. quantities" literature strictly dominates unregulated, monopoly price-setting. Furthermore, despite suggestions by others, price-setting by a regulated monopolist whose profits coincide with society's net benefits is not always the most desirable means of control. Quantity-setting by such a monopolist may instead be the preferred choice. Combining both into one incentive-compatible mechanism provides the best regulatory scheme and one in which the regulator need not be informed about costs.

Suggested Citation

  • Paul Chen, 1990. "Prices vs. Quantities and Delegating Price Authority to a Monopolist," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 57(3), pages 521-529.
    • Handle: RePEc:oup:restud:v:57:y:1990:i:3:p:521-529.
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    File URL: http://hdl.handle.net/10.2307/2298028
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    Cited by:

    1. Ascari, Guido & Bertoletti, Paolo & Menegatti, Mario, 2005. "Taxing a monopolist," Research in Economics, Elsevier, vol. 59(4), pages 321-334, December.
    2. Birendra K. Mishra & Ashutosh Prasad, 2004. "Centralized Pricing Versus Delegating Pricing to the Salesforce Under Information Asymmetry," Marketing Science, INFORMS, vol. 23(1), pages 21-27, January.
    3. Cameron Hepburn, 2006. "Regulation by Prices, Quantities, or Both: A Review of Instrument Choice," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 22(2), pages 226-247, Summer.
    4. Blair, Benjamin F. & Lewis, Tracy R. & Sappington, David E. M., 1995. "Simple regulatory policies in the presence of demand and cost uncertainty," Information Economics and Policy, Elsevier, vol. 7(1), pages 57-73, April.
    5. John Bennett, 2022. "Rationed price controls and “prices versus quantities”," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 24(6), pages 1364-1385, December.

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