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Pretend-But-Perform Regulation of a Duopoly under Three Competition Modes

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  • Saglam, Ismail

Abstract

This paper considers a duopoly with asymmetric costs and demand uncertainty to study the welfare effects of pretend-but-perform regulation (PPR) of Koray and Sertel (1988) under three modes of competition, involving the Cournot, conjectural variations, and supply function competitions. PPR induces a two-stage game where each firm declares in the first stage a cost report and produces in the second stage accordingly. Theoretically characterizing and numerically computing the equilibrium of this game, we show that the consumer surplus increases if PPR is applied under the Cournot competition and it decreases if PPR is applied under the other modes of competition.

Suggested Citation

  • Saglam, Ismail, 2022. "Pretend-But-Perform Regulation of a Duopoly under Three Competition Modes," MPRA Paper 116767, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:116767
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    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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