Affordable Access

Publisher Website

A regulatory bargain for diversified enterprises

Authors
Journal
International Journal of Industrial Organization
0167-7187
Publisher
Elsevier
Publication Date
Volume
11
Issue
1
Identifiers
DOI: 10.1016/0167-7187(93)90032-8
Disciplines
  • Economics

Abstract

Abstract This paper examines an alternative to traditional rate of return regulation and price cap regulation for public utilities which serve both non-competitive and competitive markets. The alternative is a regulatory bargain in which the allowed economic profit for the firm is tied to the level of net economic benefits (consumer surplus) accruing to the customers in non- competitive markets. Among other things, this form of regulation is shown to lead to cost minimizing production, efficient pricing in competitive and non-competitive markets, diversification into competitive markets if and only if there are economies of scope, and protection of customers in non-competitive markets from economic harm (reduced consumer surplus) if the firm does diversify.

There are no comments yet on this publication. Be the first to share your thoughts.