The Investment Effects of Price Caps under Imperfect Competition: A Note
Economics Letters 106(2), 2010, 92-94
11 Pages Posted: 5 Sep 2008 Last revised: 25 Mar 2020
Date Written: 2010
This note analyzes a simple Cournot model where firms choose outputs and capacities facing varying demand and price-cap regulation. We find that binding price caps set above long-run marginal cost increase (rather than decrease) aggregate capacity investment.
Keywords: capacity, investment, Cournot competition, price cap
JEL Classification: D24, D43, L13, L51
Suggested Citation: Suggested Citation