SFB 303 Discussion Paper No. A - 593

Author: Bös, Dieter
Title: Incomplete contracting and price regulation
Abstract: This paper deals with price regulation of a monopolistic distribution grid which sells a license to some retailer. The regulator aims at attaining efficient sale of the license and efficient relationship-specific investments of the agents. The first best can be attained by a sequential regulatory mechanism which gives the seller an option to grant the license but allows the buyer to make counteroffers. This sequential mechanism runs counter to the usual price-cap idea since possible upward but never downward renegotiation of the regulated prices is the vehicle to attain the first best.
Keywords: Regulation, Incomplete contracts, Hold-up problem
JEL-Classification-Number: D23, L51, O21
Creation-Date: April 1999
URL: ../1999/a/bonnsfa593.pdf

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