Thursday, August 20, 2015

Monopoly Regulation Under Asymmetric Information: Prices vs. Quantities

Leonardo J. Basso, Universidad de Chile - Civil Engineering Department, Nicolas Figueroa, Pontificia Universidad Catolica de Chile, and Jorge Vasquez, University of Wisconsin at Madison - Department of Economics analyze Monopoly Regulation Under Asymmetric Information: Prices vs. Quantities.

ABSTRACT: We compare two instruments to regulate a monopoly that has private information about its demand or costs: fixing the price or the quantity. For each instrument we consider two mechanisms: sophisticated (screening menus) and simple (single menus). We characterize the optimal mechanisms for every instrument, and make between and within comparisons. The two instruments are equivalent when costs are unknown. When demand is unknown and marginal costs are increasing, the sophisticated price mechanism dominates that of quantity, whereas the simple price mechanism dominates that of quantity when marginal costs are decreasing. In the remaining cases each instrument can dominate.

https://lawprofessors.typepad.com/antitrustprof_blog/2015/08/monopoly-regulation-under-asymmetric-information-prices-vs-quantities.html

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