Efficient indirect regulation under Protection for Sale

Research output: Contribution to journalArticlepeer-review


Regulatory intervention is necessary to overcome market failures. However, this kind of intervention may also create Protection for Sale conditions in the market—which might, in turn, lead to an inefficient resource allocation. This paper examines the effect of an indirect intervention on regulated market welfare under Optimal Regulation and Protection for Sale conditions. Although under Optimal Regulation conditions there is zero welfare-loss as it derives from Differential Price Policy (DPP), it seems that under substantial Protection for Sale conditions this price policy increases the welfare-loss, and therefore a Uniform Price Policy (UPP) might achieve a smaller welfare-loss—due to the “free-riding” effect. Furthermore, this paper suggests that in between these two price policies lays a third option, a Combined Price Policy, that can balance between the accurate resource allocation (DPP) and the political pressure reduction (UPP) in order to reduce the welfare-loss and to increase the market efficiency.

Original languageEnglish
Pages (from-to)41-52
Number of pages12
JournalJournal of Regulatory Economics
Issue number1
StatePublished - 1 Aug 2018
Externally publishedYes

Bibliographical note

Publisher Copyright:
© 2018, Springer Science+Business Media, LLC, part of Springer Nature.


  • Free-riding
  • Menu-auction
  • Protection for Sale
  • Regulatory policy

ASJC Scopus subject areas

  • Economics and Econometrics


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