Abstract
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 language | English |
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Pages (from-to) | 41-52 |
Number of pages | 12 |
Journal | Journal of Regulatory Economics |
Volume | 54 |
Issue number | 1 |
DOIs | |
State | Published - 1 Aug 2018 |
Externally published | Yes |
Bibliographical note
Publisher Copyright:© 2018, Springer Science+Business Media, LLC, part of Springer Nature.
Keywords
- Free-riding
- Menu-auction
- Protection for Sale
- Regulatory policy
ASJC Scopus subject areas
- Economics and Econometrics