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Price-Capping regulation as a protectionist strategy in developing countries

Author

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  • Lawrence, Peter

    (Keele University)

  • Arijit Mukherjee

Abstract

In developing countries undergoing liberalising reforms, there are typically local incumbents facing the loss of protection. Strategic lobbying by such firms for a price-capping regulatory regime can deter entry. We show that a regulatory price can be set such that the net profit of the entrant is lower than the entry cost thus deterring entry and that it is possible for the profit of the incumbent to be greater under regulation than under unregulated duopoly. We consider the case of multiple incumbents threatened by entry and also extend our analysis to incorporate lobbying by the entrant.

Suggested Citation

  • Lawrence, Peter & Arijit Mukherjee, 2003. "Price-Capping regulation as a protectionist strategy in developing countries," Royal Economic Society Annual Conference 2003 132, Royal Economic Society.
    • Handle: RePEc:ecj:ac2003:132
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    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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