Incentive Regulation and Efficient Pricing

Monica Giulietti, Catherine Waddams Price*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

Abstract

One objective of introducing incentive regulation to the newly privatized UK utilities over the past 20 years was to encourage efficient pricing structures. Caps have been imposed on average price levels, giving firms freedom to rebalance amongst prices within the basket. We test how firms have responded to the incentives within such discretion through an extensive review of the relative prices charged within UK price capped industries. We find surprisingly little response to these incentives, suggesting that strategic behaviour dominates short-term profit incentives even after the introduction or threat of competition.

Original languageEnglish
Pages (from-to)121-149
Number of pages29
JournalAnnals of Public and Cooperative Economics
Volume76
Issue number1
DOIs
Publication statusPublished - 1 Mar 2005

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