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Please use this identifier to cite or link to this item: http://hdl.handle.net/2108/143

Title: Strategic pricing and entry deterrence under price cap regulation
Authors: Iozzi, Alberto
Keywords: price cap regulation
entry deterrence
Issue Date: Dec-2000
Publisher: CEIS
Series/Report no.: Quaderni CEIS; 130
Abstract: This paper shows that dynamic price cap regulation allows the regulated firm to deter entry. Under dynamic price cap regulation, the allowed prices in each period are an increasing function of the prices set in the previous period. By setting a low price before entry, the regulated firm can commit itself to charge a low price in the event of entry. If this price is sufficiently low with respect to the potential entrant’s fixed cost, entry does not occur. Whether the regulated firm prefers to deter or accommodate entry depends on the level of the entry cost for the prospective entrant, on the tightness of the price cap and on the degree of market power of the competing firms in case of entry.
URI: http://hdl.handle.net/2108/143
Appears in Collections:Quaderni

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