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Inducing Optimal Quality Under Price Caps: Why, How, and Whether

In: New Business and Regulatory Strategies in the Postal Sector

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  • Timothy J. Brennan

    (UMBC)

Abstract

Quality of postal service is of concern around the world, and was a subject of proceedings in the US to assess the performance of price-cap regulation (PCR) of “market-dominant” services. Although PCR does not imply minimizing quality, work by Sappington implies that quality will be below the optimal level at the regulated price. Mechanisms to get regulated firms to internalize this quality externality, consistent with information limitations justifying PCR, provide no benefits to postal customers. Negotiated arrangements between a postal operator and its regulator to set and incentivize quality of service are likely the best available option.

Suggested Citation

  • Timothy J. Brennan, 2018. "Inducing Optimal Quality Under Price Caps: Why, How, and Whether," Topics in Regulatory Economics and Policy, in: Pier Luigi Parcu & Timothy J. Brennan & Victor Glass (ed.), New Business and Regulatory Strategies in the Postal Sector, pages 15-28, Springer.
  • Handle: RePEc:spr:topchp:978-3-030-02937-1_2
    DOI: 10.1007/978-3-030-02937-1_2
    as

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