Undominated monopoly regulation
Theoretical Economics
2025-05-13 v3
Abstract
We study undominated mechanisms with transfers for regulating a monopolist who privately observes the marginal cost of production. We show that in any undominated mechanism, there is a quantity floor, which depends only on the primitives, and the regulator's operation decision is stochastic only if the monopolist produces at the quantity floor. We provide a near-complete characterization of the set of undominated mechanisms and use it to (a) provide a foundation for deterministic mechanisms, (b) show that the efficient mechanism is dominated, and (c) derive a max-min optimal regulatory mechanism.
Cite
@article{arxiv.2408.09473,
title = {Undominated monopoly regulation},
author = {Debasis Mishra and Sanket Patil},
journal= {arXiv preprint arXiv:2408.09473},
year = {2025}
}