Threat-based regulation and endogenously determined punishments
We present a theoretical model to show that through the adoption of simple regulatory rules, the threat of regulation as well as regulation itself impacts upon a firm s pricing strategy. The model is relevant to general antitrust policy, as well as the regulation of individual utility industries. While the paper focuses on the threat of revenue regulation, the principal results may also hold when regulation takes the form of penalties on prices charged. In the model the probability of regulatory intervention increases with the level of price charged, as does the toughness of any regulation imposed. This form of regulation, although not optimal, has the advantage of being relatively simple to apply. The proposed regulatory rules offer a form of transparent regulation that could circumvent fears of regulatory capture.
In order to set up a list of libraries that you have access to,
you must first login
or sign up.
Then set up a personal list of libraries from your profile page by
clicking on your user name at the top right of any screen.