Document Type

Article

Publication Date

Fall 2017

Publication Title

The RAND Journal of Economics

Abstract

We compare two instruments to regulate a monopoly that has private information about its demand or costs: fixing either the price or quantity. For each instrument, we consider sophisticated (screening) and simple (bunching) mechanisms. We characterize the optimal mechanisms and compare their welfare performance. With unknown demand and increasing marginal costs, the sophisticated price mechanism dominates that of quantity, whereas the sophisticated quantity mechanism may prevail when marginal costs decrease. The simple price mechanism dominates that of quantity when marginal costs decrease, but the opposite may arise if marginal costs increase. With unknown costs, both instruments are equivalent.

Keywords

Price regulation, quantity regulation, market power, mechanism design

Volume

48

Issue

3

First Page

557

Last Page

578

DOI

10.1111/1756-2171.12187

Comments

Peer reviewed accepted manuscript.

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Economics Commons

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