Submitted manuscript, 173 KB, PDF document
Research output: Working paper
Research output: Working paper
}
TY - UNPB
T1 - Threat-based regulation and endogenously determined punishments
AU - Elliott, C F
AU - Acutt, M Z
PY - 2001
Y1 - 2001
N2 - 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.
AB - 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.
KW - Regulation
KW - Revenue
KW - Antitrust
KW - Threat
M3 - Working paper
T3 - Economics Working Paper Series
BT - Threat-based regulation and endogenously determined punishments
PB - The Department of Economics
CY - Lancaster University
ER -