Pricing and entry in regulated industries: The role of regulatory design

This paper studies the optimal regulatory policy in a marker where entry may occur. In the event of entry, the regulator regulates the incumbent, but not the entrant. We show that the effect of entry on prices depends on the length of the interval between regulatory reviews: if the gap is long, then the market outcome following entry has a higher price than it would have with a shorter gap. (C) 1997 Elsevier Science S.A.