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Entry, Pricing and Incentives: The Role of Regulatory Commitment


  • De Fraja, Gianni


This paper studies the optimal regulatory policy in a market where entry may occur. The regulator regulates the incumbent, but not the entrant in the event of entry. We show that the effect of entry on prices and incentives for cost reduction depends on the extent of the regulator's commitment: if it is possible to commit to the chosen policy, then the market outcome following entry is less competitive than it would be without the possibility to commit: price is higher and incentives for cost reduction weaker.

Suggested Citation

  • De Fraja, Gianni, 1994. "Entry, Pricing and Incentives: The Role of Regulatory Commitment," CEPR Discussion Papers 1078, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:1078

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    References listed on IDEAS

    1. Stock, James H. & Watson, Mark W., 1989. "Interpreting the evidence on money-income causality," Journal of Econometrics, Elsevier, vol. 40(1), pages 161-181, January.
    2. Andrew Atkeson & Tamim Bayoumi, 1993. "Do private capital markets insure regional risk? Evidence from the United States and Europe," Open Economies Review, Springer, vol. 4(3), pages 303-324, September.
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    Cited by:

    1. De Fraja, Gianni, 1997. "Pricing and entry in regulated industries: The role of regulatory design," Journal of Public Economics, Elsevier, vol. 64(2), pages 259-278, May.

    More about this item


    Commitment; Entry; Regulation;

    JEL classification:

    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation


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