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Ramsey pricing and competition: The consequences of myopic regulation

✍ Scribed by James E. Prieger

Publisher
Springer US
Year
1996
Tongue
English
Weight
823 KB
Volume
10
Category
Article
ISSN
0922-680X

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✦ Synopsis

This paper addresses the welfare consequences of applying the Ramsey rule when the regulated firm is not a monopolist in all of its markets. The partially regulated optimum and the outcome of myopic regulation, the =Short-Sighted Ramsey Equilibrium" (SSRE), are examined in a differentiated duopoly model. In the optimum, the markup of competitive substitute goods is relatively high. In the SSRE, the regulator is likely to set the price of competitive substitute goods lower than optimal, and complementary goods higher than optimal. Sb'ategic reactions by a competitor may reverse the result.

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