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Title:Production under uncertainty: a characterization of welfare enhancing and optimal price caps PDF Logo
Authors:Grimm, Veronika
Zoettl, Gregor
Issue Date:2008
Series/Report no.:IWQW discussion paper series 02/2008
Abstract:We analyze the effect of price caps on equilibrium production and welfare in oligopoly under demand uncertainty. We find that high price caps always increase production and welfare as compared to the situation without price cap. Price caps close to marginal cost may lead to zero production, depending on the nature of uncertainty. We characterize the optimal price cap and show that typically, the optimal price cap is bounded away from marginal cost.
Subjects:Demand uncertainty
Cournot competition
price caps
Document Type:Working Paper
Appears in Collections:FAU Discussion Papers in Economics, Friedrich-Alexander-Universität Erlangen-Nürnberg

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