Affiliation:
1. Department of Economics , Kansas State University , Manhattan , KS 66506-4001 , USA
Abstract
Abstract
Price cap regulation (PCR) as commonly implemented closely approximates atomistic Cournot competition in terms of the pass-through of industry and firm-specific cost-reducing innovation when the invariance property holds. A key finding is that the aggregate pass-through of cost-reducing innovation under PCR exceeds that under Cournot, holding the number of firms constant. The welfare gains under PCR are greater than Cournot when cost-reducing innovation is endogenous, the invariance property holds and demand is highly inelastic.
Subject
Economics, Econometrics and Finance (miscellaneous),Economics and Econometrics
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