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The Investment Effects of Price Caps under Imperfect Competition: A Note

  • Stefan Bühler

    ()

  • Anton Burger

    ()

  • Robert Ferstl

    ()

This note analyzes a simple Cournot model where firms choose outputs and capacities facing varying demand and price-cap regulation. We find that binding price caps set above long-run marginal cost increase (rather than decrease) aggregate capacity investment.

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File URL: http://www1.vwa.unisg.ch/RePEc/usg/dp2008/DP-17-Bu.pdf
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Paper provided by Department of Economics, University of St. Gallen in its series University of St. Gallen Department of Economics working paper series 2008 with number 2008-17.

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Length: 11 pages
Date of creation: Aug 2008
Date of revision:
Handle: RePEc:usg:dp2008:2008-17
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  1. Zhuang, Jifang & Gabriel, Steven A., 2008. "A complementarity model for solving stochastic natural gas market equilibria," Energy Economics, Elsevier, vol. 30(1), pages 113-147, January.
  2. Gabszewicz, J.J. & Poddar, S., . "Demand fluctuations and capacity utilization under duopoly," CORE Discussion Papers RP -1269, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Severin Borenstein, 2002. "The Trouble With Electricity Markets: Understanding California's Restructuring Disaster," Journal of Economic Perspectives, American Economic Association, vol. 16(1), pages 191-211, Winter.
  4. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, June.
  5. Grobman, Jeffrey H. & Carey, Janis M., 2001. "Price caps and investment: long-run effects in the electric generation industry," Energy Policy, Elsevier, vol. 29(7), pages 545-552, June.
  6. Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121743, June.
  7. Graeme Guthrie, 2006. "Regulating Infrastructure: The Impact on Risk and Investment," Journal of Economic Literature, American Economic Association, vol. 44(4), pages 925-972, December.
  8. Crew, Michael A & Fernando, Chitru S & Kleindorfer, Paul R, 1995. "The Theory of Peak-Load Pricing: A Survey," Journal of Regulatory Economics, Springer, vol. 8(3), pages 215-48, November.
  9. David M. Kreps & Jose A. Scheinkman, 1983. "Quantity Precommitment and Bertrand Competition Yield Cournot Outcomes," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 326-337, Autumn.
  10. Cabral, Luis M B & Riordan, Michael H, 1989. "Incentives for Cost Reduction under Price Cap Regulation," Journal of Regulatory Economics, Springer, vol. 1(2), pages 93-102, June.
  11. Genc, Talat S. & Reynolds, Stanley S. & Sen, Suvrajeet, 2007. "Dynamic oligopolistic games under uncertainty: A stochastic programming approach," Journal of Economic Dynamics and Control, Elsevier, vol. 31(1), pages 55-80, January.
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