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    Rights statement: The final publication is available at Springer via http://dx.doi.org/10.1007/s00199-016-0963-6

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Price caps, oligopoly, and entry

Research output: Contribution to Journal/Magazine › Journal article › peer-review

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Price caps, oligopoly, and entry. / Reynolds, Stanley; Rietzke, David Michael.
In: Economic Theory, Vol. 66, No. 3, 10.2018, p. 707-745.

Research output: Contribution to Journal/Magazine › Journal article › peer-review

Harvard

Reynolds, S & Rietzke, DM 2018, 'Price caps, oligopoly, and entry', Economic Theory, vol. 66, no. 3, pp. 707-745. https://doi.org/10.1007/s00199-016-0963-6

APA

Reynolds, S., & Rietzke, D. M. (2018). Price caps, oligopoly, and entry. Economic Theory, 66(3), 707-745. https://doi.org/10.1007/s00199-016-0963-6

Vancouver

Reynolds S, Rietzke DM. Price caps, oligopoly, and entry. Economic Theory. 2018 Oct;66(3):707-745. Epub 2016 Mar 11. doi: 10.1007/s00199-016-0963-6

Author

Reynolds, Stanley ; Rietzke, David Michael. / Price caps, oligopoly, and entry. In: Economic Theory. 2018 ; Vol. 66, No. 3. pp. 707-745.

Bibtex

@article{024b09ca024b463e8dec2b1c7955665c,
title = "Price caps, oligopoly, and entry",
abstract = "We extend the analysis of price caps in oligopoly markets to allow for sunk entry costs and endogenous entry. In the case of deterministic demand and constant marginal cost, reducing a price cap yields increased total output, consumer welfare, and total welfare; results consistent with those for oligopoly markets with a fixed number of firms. With deterministic demand and increasing marginal cost these comparative static results may be fully reversed, and a welfare-improving cap may not exist. Recent results in the literature show that for a fixed number of firms, if demand is stochastic and marginal cost is constant then lowering a price cap may either increase or decrease output and welfare (locally); however, a welfare improving price cap does exist. In contrast to these recent results, we show that a welfare-improving cap may not exist if entry is endogenous. However, within this stochastic demand environment we show that certain restrictions on the curvature of demand are sufficient to ensure the existence of a welfare-improving cap when entry is endogenous.",
keywords = "price ceiling, price cap, market power, market entry, supermodular game",
author = "Stanley Reynolds and Rietzke, {David Michael}",
note = "The final publication is available at Springer via http://dx.doi.org/10.1007/s00199-016-0963-6",
year = "2018",
month = oct,
doi = "10.1007/s00199-016-0963-6",
language = "English",
volume = "66",
pages = "707--745",
journal = "Economic Theory",
issn = "0938-2259",
publisher = "Springer-Verlag,",
number = "3",

}

RIS

TY - JOUR

T1 - Price caps, oligopoly, and entry

AU - Reynolds, Stanley

AU - Rietzke, David Michael

N1 - The final publication is available at Springer via http://dx.doi.org/10.1007/s00199-016-0963-6

PY - 2018/10

Y1 - 2018/10

N2 - We extend the analysis of price caps in oligopoly markets to allow for sunk entry costs and endogenous entry. In the case of deterministic demand and constant marginal cost, reducing a price cap yields increased total output, consumer welfare, and total welfare; results consistent with those for oligopoly markets with a fixed number of firms. With deterministic demand and increasing marginal cost these comparative static results may be fully reversed, and a welfare-improving cap may not exist. Recent results in the literature show that for a fixed number of firms, if demand is stochastic and marginal cost is constant then lowering a price cap may either increase or decrease output and welfare (locally); however, a welfare improving price cap does exist. In contrast to these recent results, we show that a welfare-improving cap may not exist if entry is endogenous. However, within this stochastic demand environment we show that certain restrictions on the curvature of demand are sufficient to ensure the existence of a welfare-improving cap when entry is endogenous.

AB - We extend the analysis of price caps in oligopoly markets to allow for sunk entry costs and endogenous entry. In the case of deterministic demand and constant marginal cost, reducing a price cap yields increased total output, consumer welfare, and total welfare; results consistent with those for oligopoly markets with a fixed number of firms. With deterministic demand and increasing marginal cost these comparative static results may be fully reversed, and a welfare-improving cap may not exist. Recent results in the literature show that for a fixed number of firms, if demand is stochastic and marginal cost is constant then lowering a price cap may either increase or decrease output and welfare (locally); however, a welfare improving price cap does exist. In contrast to these recent results, we show that a welfare-improving cap may not exist if entry is endogenous. However, within this stochastic demand environment we show that certain restrictions on the curvature of demand are sufficient to ensure the existence of a welfare-improving cap when entry is endogenous.

KW - price ceiling

KW - price cap

KW - market power

KW - market entry

KW - supermodular game

U2 - 10.1007/s00199-016-0963-6

DO - 10.1007/s00199-016-0963-6

M3 - Journal article

VL - 66

SP - 707

EP - 745

JO - Economic Theory

JF - Economic Theory

SN - 0938-2259

IS - 3

ER -