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|Title: ||Strategic pricing and entry deterrence under price cap regulation|
|Authors: ||Iozzi, Alberto|
|Keywords: ||price cap regulation|
|Issue Date: ||Dec-2000 |
|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.|
|Appears in Collections:||Quaderni|
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