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Undominated monopoly regulation

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Listed:
  • Debasis Mishra
  • Sanket Patil

Abstract

We study undominated mechanisms with transfers for regulating a monopolist who privately observes the marginal cost of production. We show that in any undominated mechanism, there is a quantity floor, which depends only on the primitives, and the regulator's operation decision is stochastic only if the monopolist produces at the quantity floor. We provide a near-complete characterization of the set of undominated mechanisms and use it to (a) provide a foundation for deterministic mechanisms, (b) show that the efficient mechanism is dominated, and (c) derive a max-min optimal regulatory mechanism.

Suggested Citation

  • Debasis Mishra & Sanket Patil, 2024. "Undominated monopoly regulation," Papers 2408.09473, arXiv.org, revised May 2025.
    • Handle: RePEc:arx:papers:2408.09473
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    References listed on IDEAS

    as
    1. Amador, Manuel & Bagwell, Kyle, 2022. "Regulating a monopolist with uncertain costs without transfers," Theoretical Economics, Econometric Society, vol. 17(4), November.
    2. Armstrong, Mark, 1999. "Optimal Regulation with Unknown Demand and Cost Functions," Journal of Economic Theory, Elsevier, vol. 84(2), pages 196-215, February.
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