Journal of Political Economy Vol. 127 No. 6 2019
Price Caps as Welfare-Enhancing Coopetition
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 nonrepeated 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.
- DOI
- 10.1086/702014
- Volume
- 127
- Issue
- 6
- Pages
- 3018-3069
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref