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Regulated competition under increasing returns to scale

Accepted version
Peer-reviewed

Repository DOI


Type

Article

Change log

Authors

Greve, T 
Keiding, H 

Abstract

© 2016 Wiley Periodicals, Inc. In the classical models of regulation economics, a mechanism that secures truthful revelation involves paying a subsidy to the firm. In this paper, we investigate whether it is possible to create a regulatory mechanism under a no-subsidy constraint that induces the firm to report its private information truthfully. We consider a number of firms operating under regulated competition and with increasing returns to scale technology. It is shown that in equilibrium each firm chooses to report truthfully without receiving any subsidy. The use of competition may give rise to an efficiency loss due to the increasing returns to scale. However, we show that our mechanism may still be better, from a social welfare point of view, than the case of monopoly regulation that involves no subsidy.

Description

Keywords

L51, L13

Journal Title

Journal of Public Economic Theory

Conference Name

Journal ISSN

1467-9779
1467-9779

Volume Title

Publisher

Wiley