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Threat-based regulation and endogenously determined punishments

Elliott, C F and Acutt, M Z (2001) Threat-based regulation and endogenously determined punishments. Working Paper. The Department of Economics, Lancaster University.

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    Abstract

    We present a theoretical model to show that through the adoption of simple regulatory rules, the threat of regulation as well as regulation itself impacts upon a firm s pricing strategy. The model is relevant to general antitrust policy, as well as the regulation of individual utility industries. While the paper focuses on the threat of revenue regulation, the principal results may also hold when regulation takes the form of penalties on prices charged. In the model the probability of regulatory intervention increases with the level of price charged, as does the toughness of any regulation imposed. This form of regulation, although not optimal, has the advantage of being relatively simple to apply. The proposed regulatory rules offer a form of transparent regulation that could circumvent fears of regulatory capture.

    Item Type: Monograph (Working Paper)
    Uncontrolled Keywords: Regulation ; Revenue ; Antitrust ; Threat
    Subjects: UNSPECIFIED
    Departments: Lancaster University Management School > Economics
    ID Code: 48544
    Deposited By: ep_importer_pure
    Deposited On: 11 Jul 2011 21:59
    Refereed?: No
    Published?: Published
    Last Modified: 27 Jul 2012 01:09
    Identification Number:
    URI: http://eprints.lancs.ac.uk/id/eprint/48544

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