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Incentive Regulation and Efficient Pricing
Author(s) -
Giulietti Monica,
Waddams Price Catherine
Publication year - 2005
Publication title -
annals of public and cooperative economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.526
H-Index - 37
eISSN - 1467-8292
pISSN - 1370-4788
DOI - 10.1111/j.1370-4788.2005.00273.x
Subject(s) - incentive , discretion , economics , competition (biology) , microeconomics , welfare economics , political science , ecology , law , biology
** : 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 .