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ISRN Economics
Volume 2012 (2012), Article ID 509165, 10 pages
http://dx.doi.org/10.5402/2012/509165
Research Article

Price Regulation in Oligopolistic Markets

1Departamento de Economía, Universidad Carlos III, 28903 Madrid, Spain
2Departamento de Fundamentos del Análisis Económico, Universidad Complutense de Madrid, 28223 Madrid, Spain

Received 15 September 2012; Accepted 8 November 2012

Academic Editors: C. Le Van and E. Yeldan

Copyright © 2012 Luis C. Corchón and Félix Marcos. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

Abstract

We consider price regulation in oligopolistic markets when firms are quantity setters. We consider a market for a homogeneous good with a demand function of special form ( -linearity), constant returns to scale, and identical firms. Marginal costs can take two values only: low or high. Values of all parameters except the marginal costs are known to the regulator. Assuming that the regulator is risk-neutral and maximizes expected social welfare (defined as the sum of consumer surplus and profits), we characterize the optimal policy and show how this policy depends on the basic parameters of demand and costs.