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Multiproduct price regulation under asymmetric information

Subject

Economics

Publishing details

Regulation Initiative Working Paper Series

Publication Year

1997

Abstract

In this paper we discuss the regulation of a multiproduct monopolist when there is private information about cost or demand conditions. We analyse the case where the regulator cannot make lump-sum transfers to the firm, and instead offers the firm a set of prices from which to choose. When there is private information only about costs, a degree of discretion over pricing structure is always optimal. In simple example it is shown that it is optimal to distort prices away from Ramsey prices for high cost firms, but low cost firms should set the full-information Ramsey prices. When the uncertainty concerns consumer demand, whether any discretion is desirable depennds on how demand elasticties vary with the scale of demands. In an appendix we discuss the case where transfers are allowed.

Publication Research Centre

Regulation Initiative (closed)

Series Number

8

Series

Regulation Initiative Working Paper Series

Available on ECCH

No


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