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The investment effects of price caps under imperfect competition: A note
Authors:Stefan Buehler  Anton Burger  Robert Ferstl
Affiliation:1. University of St. Gallen, IFF-HSG, Varnbüelstr. 19, CH-9000 St. Gallen, Switzerland;2. Frontier Economics, London, United Kingdom;3. University of Regensburg, Universitätsstraße 31, 93053 Regensburg, Germany;1. Economics and Sustainability at AGL Energy Ltd, Griffith University, Level 21, 101 Miller Street, North Sydney, NSW, 2060, Australia;2. Manager Carbon and Renewable Policy at AGL Energy Ltd, Level 21, 101 Miller Street, North Sydney, NSW, 2060, Australia;3. University of New England, Armidale, NSW, 2351, Australia;1. University of Oxford, United Kingdom;2. Bank of Finland, Finland;3. London Business School, United Kingdom;4. CEPR, United Kingdom
Abstract:We examine the impact of price cap regulation on the capacity investments of oligopolistic suppliers facing time-varying demand. We find that binding price caps set above long-run marginal cost increase (rather than decrease) aggregate capacity investment.
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