Scandinavian Working Papers in Business Administration

FE rapport,
University of Gothenburg, Department of Business Administration

No 2004-404: Monopolreglering med nätnyttomodellens princip – modellkalibrering och incitament

Björn Lantz ()
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Björn Lantz: Department of Business Administration, School of Economics and Commercial Law, Göteborg University, Postal: Box 640, SE 405 30 Göteborg, Sweden

Abstract: Revenue capping is a common way to regulate monopolistic utilities. A common suggestion when the revenue cap is cost based is that the regulator needs to determine the revenue cap so that both fixed and variable cost components as closely as possible match the true cost of the monopoly. In this report, however, it is shown that the variable cost component in the model needs to exceed the true variable cost in order to give incentives to efficiency improvement compared to the case of no regulation. It is also shown that the size of the fixed cost component only affects the amount of market power that the monopoly can excercise.

Keywords: Monopoly regulation; Price cap regulation; incentive regulation

23 pages, June 22, 2004

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