Production under uncertainty: a characterization of welfare enhancing and optimal price caps
We analyze the effect of price caps on equilibrium production and welfare in oligopoly under demand uncertainty. We find that high price caps always increase production and welfare as compared to the situation without price cap. Price caps close to marginal cost may lead to zero production, depending on the nature of uncertainty. We characterize the optimal price cap and show that typically, the optimal price cap is bounded away from marginal cost.
|Date of creation:||2008|
|Date of revision:|
|Contact details of provider:|| Web page: https://www.iwf.rw.fau.de/|
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