Price-Cap Regulation of Firms That Supply Their Rivals
Soo Jin Kim,
Omar A. Nayeem,
Aleksandr Yankelevich
Abstract:We study price-cap regulation in a market in which a vertically integrated upstream monopolist sells an essential input to a downstream competitor. In the absence of regulation, entry benefits both firms, but may harm downstream consumers because the upstream monopolist can set a high input price that would push downstream prices above the unregulated monopoly level. However, if a regulator caps the incumbent’s upstream and downstream prices, consumers and firms are better off after entry than under a price-ca… Show more
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