Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/283535 
Year of Publication: 
2024
Series/Report no.: 
MAGKS Joint Discussion Paper Series in Economics No. 04-2024
Publisher: 
Philipps-University Marburg, School of Business and Economics, Marburg
Abstract: 
This paper studies the pricing incentives of a monopolist constrained by a revenue cap endogenously determined by her costs in a so-called base year. Such regulation is employed, among others, to govern electricity distribution operators in Germany. We show that the revenue cap may incentivize excessive supply in the base year to reap profits in the non-base years. A connected set of price caps exists so that a hybrid regulation consisting of any element in this set and the cost-based revenue cap unambiguously improves welfare and, under some conditions, even leads to the socially optimal outcome.
Subjects: 
regulation
monopoly
electricity distribution
JEL: 
D21
D42
L12
L51
L94
Document Type: 
Working Paper

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