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Regulation by Price Adjustment

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  • James Hagerman

Abstract

The regulatory price-adjustment process originally proposed by Vogelsang and Finsinger has been shown to be vulnerable to strategic manipulation by the regulated firm. This article proposes several modifications to that scheme which improve its performance and broaden its applicability. Inclusion of a monopoly franchise market and the firm's past prices and earnings in the price-adjustment constraints are shown to ensure efficient production by the firm and convergence to Ramsey prices regardless of the firm's cost structure.

Suggested Citation

  • James Hagerman, 1990. "Regulation by Price Adjustment," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 72-82, Spring.
  • Handle: RePEc:rje:randje:v:21:y:1990:i:spring:p:72-82
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    Cited by:

    1. Covaleski, Mark A. & Dirsmith, Mark W., 1995. "The preservation and use of public resources: Transforming the immoral into the merely factual," Accounting, Organizations and Society, Elsevier, vol. 20(2-3), pages 147-173.
    2. Semih Koray & Ismail Saglam, 2005. "The Need for Regulating a Bayesian Regulator," Journal of Regulatory Economics, Springer, vol. 28(1), pages 5-21, July.
    3. Guthrie, Graeme, 2006. "Regulating Infrastructure: The Impact on Risk and Investment," Working Paper Series 3851, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.
    4. Evangelinos, Christos, 2013. "Infrastrukturpreise: Eine normativ-theoretische Analyse," Discussion Papers 1/2013, Technische Universit├Ąt Dresden, "Friedrich List" Faculty of Transport and Traffic Sciences, Institute of Transport and Economics.
    5. Graeme Guthrie, 2006. "Regulating Infrastructure: The Impact on Risk and Investment," Journal of Economic Literature, American Economic Association, vol. 44(4), pages 925-972, December.
    6. Armstrong, Mark & Sappington, David E.M., 2007. "Recent Developments in the Theory of Regulation," Handbook of Industrial Organization, Elsevier.
    7. Roques, Fabien A. & Savva, Nicos, 2009. "Investment under uncertainty with price ceilings in oligopolies," Journal of Economic Dynamics and Control, Elsevier, vol. 33(2), pages 507-524, February.

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