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TIGHTER AVERAGE REVENUE REGULATION CAN REDUCE CONSUMER WELFARE

Publisher
BLACKWELL PUBL LTD
Publication Date
Keywords
  • Hg Finance
  • Hc Economic History And Conditions

Abstract

A monopolist producing for two markets is subject to an average revenue constraint (ARC), a form of regulation which is relevant to some UK utilities. Where marginal costs of serving the two markets differ, tighter regulation may cause one of the prices to rise as shown by Bradley and Price [1988]. A simple linear example demonstrates that total consumer surplus may fall as regulation becomes more stringent.

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