Regulating a Monopolist with Unknown Demand and Cost Functions
We consider the design of regulatory policy when the regulator is imperfectly informed about both the firm's cost function and the demand function it faces. To some extent the optimal policy here is the natural "combination" of the optimal policies when there is uncertainty only about either demand or cost. Important qualitative differences also exist, however. For example, it may be optimal to set prices below marginal cost, and the pricing authority delegated to the firm may be more limited when there is uncertainty about both cost and demand.
Volume (Year): 19 (1988)
Issue (Month): 3 (Autumn)
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References listed on IDEAS
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- Myerson, Roger B, 1979.
"Incentive Compatibility and the Bargaining Problem,"
Econometric Society, vol. 47(1), pages 61-73, January.
- Roger B. Myerson, 1977. "Incentive Compatability and the Bargaining Problem," Discussion Papers 284, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Michael H. Riordan, 1984. "On Delegating Price Authority to a Regulated Firm," RAND Journal of Economics, The RAND Corporation, vol. 15(1), pages 108-115, Spring.
- Laffont, Jean-Jacques & Tirole, Jean, 1986.
"Using Cost Observation to Regulate Firms,"
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University of Chicago Press, vol. 94(3), pages 614-41, June.
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