Robust Monopoly Regulation

2019/10/09 by Yingni Guo, Guo, Yingni, Eran Shmaya +1 · 3 citations
Business, Management and Accounting · Decision Sciences · #Auction Theory and Applications #Computer Science and Game Theory (cs.GT) #Consumer Market Behavior and Pricing #FOS: Computer and information sciences #FOS: Economics and business #Supply Chain and Inventory Management #Theoretical Economics (econ.TH)

paper · pdf · doi:10.48550/arxiv.1910.04260

openalex publication_date 2019/10/09 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28

Abstract

We study the regulation of a monopolistic firm using a robust-design approach. We solve for the policy that minimizes the regulator's worst-case regret, where the regret is the difference between his complete-information payoff minus his realized payoff. When the regulator's payoff is consumers' surplus, it is optimal to impose a price cap. The optimal cap balances the benefit from more surplus for consumers and the loss from underproduction. When his payoff is consumers' surplus plus the firm's profit, he offers a piece-rate subsidy in order to mitigate underproduction, but caps the total subsidy so as not to incentivize severe overproduction.

Cited by

• Robust Procurement: Bayesian Design under Worst-Case Approval Constraints
• Regulating a Monopolist without Subsidy
• Scale-robust Auctions

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