RT Generic
T1 Price caps regulation with capacity precommitment
A1 Lemus Torres, Ana Belén
A1 Moreno, Diego
A2 Universidad Carlos III de Madrid. Departamento de Economía, 
AB In order to examine the effectiveness of price caps to regulate imperfectly competitive markets inwhich the demand is uncertain, we study a monopoly that makes irreversible capacity investmentsex-ante, and then chooses its output upon observing the realization of demand. When capacitydecisions have no precommitment value, price cap regulation remains fully effective. Withcapacity precommitment, however, the optimal price cap must trade off the incentives for capacityinvestment and capacity withholding, and is above the unit cost of capacity. While a price capmitigates market power, it cannot eliminate inefficiencies. Capacity payments provide a usefulcomplementary instrument.
SN 2340-5031
YR 2014
FD 2014-08-01
LK https://hdl.handle.net/10016/19349
UL https://hdl.handle.net/10016/19349
LA eng
NO We gratefully acknowledge financial support from the Ministerio de Ciencia e Innovación, grant ECO2011‐29762.
DS e-Archivo
RD 1 sept. 2024