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<p>The threat of economic regulation wields pricing discipline that may obviate the need for explicit regulatory mechanisms that are costly to implement and administer. In a Bertrand duopoly under the threat of regulation, neither duopolist considers the financial effect of increasing its price on the increased probability that regulation will be triggered for its rival. This externality is internalized in the collusive equilibrium. When the financial effect of triggering regulation is sufficiently large, the collusive outcome yields lower prices (and higher welfare) than does the non-cooperative Bertrand-Nash outcome. Collusive behavior is efficient under these conditions because it facilitates a type of self-regulation that yields lower prices and thereby renders less likely the necessity for costly regulatory regimes.</p>

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Pricing by Duopolists Under Regulatory Threat

  • 期刊论文

  • 发表日期：

    2026年3月19日

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  • Dennis L. Weisman

摘要

The threat of economic regulation wields pricing discipline that may obviate the need for explicit regulatory mechanisms that are costly to implement and administer. In a Bertrand duopoly under the threat of regulation, neither duopolist considers the financial effect of increasing its price on the increased probability that regulation will be triggered for its rival. This externality is internalized in the collusive equilibrium. When the financial effect of triggering regulation is sufficiently large, the collusive outcome yields lower prices (and higher welfare) than does the non-cooperative Bertrand-Nash outcome. Collusive behavior is efficient under these conditions because it facilitates a type of self-regulation that yields lower prices and thereby renders less likely the necessity for costly regulatory regimes.