Price Caps as Welfare-Enhancing Coopetition

Rey, Patrick and Tirole, Jean (2019) Price Caps as Welfare-Enhancing Coopetition. Journal of Political Economy. (In Press)

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Official URL: http://tse-fr.eu/pub/32736

Abstract

The paper analyzes the impact of price caps agreed upon by industry participants. Price caps, like mergers, allow firms to solve Cournot's multiple marginalization problem; but unlike mergers, they do not stifle price competition in case of substitutes or facilitate foreclosure in case of complements. The paper first demonstrates this for non-repeated interaction and general demand and cost functions. It then shows that allowing price caps has no impact on investment and entry in case of substitutes. Under more restrictive assumptions, the paper finally generalizes the insights to repeated price interaction, analyzing coordinated effects when goods are not necessarily substitutes.

Item Type: Article
Language: English
Date: 2019
Refereed: Yes
Uncontrolled Keywords: Price caps, information-light regulation, tacit collusion, complements and substitutes, mergers, foreclosure, joint marketing agreements, coopetition
JEL codes: D43 - Oligopoly and Other Forms of Market Imperfection
L24 - Contracting Out; Joint Ventures; Technology Licensing
L41 - Monopolization; Horizontal Anticompetitive Practices
O34 - Intellectual Property Rights - National and International Issues
Subjects: B- ECONOMIE ET FINANCE
Divisions: TSE-R (Toulouse)
Site: UT1
Date Deposited: 22 Jun 2018 15:30
Last Modified: 21 Jan 2019 14:42
OAI ID: oai:tse-fr.eu:32736
URI: http://publications.ut-capitole.fr/id/eprint/26096

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