Implementation of quantity restrictions and the effect on market power

Abstract

In this paper the differenee between firm-specific and market quotas as two kinds of quantity restrictions used as a reglllatory tool and their effect on market power is stressed. It is argued that the use of tbe specific type of quantity restriction depends on who seeks the quantity restrictions. It is shown that for a range of capacities, firm-speeific quotas first-order stochastically dominate market quotas. That is, firm-specific quotas yield higher expected prices (greater market power), relative to market quotas, for a range of capacities.