WP 70 | 14 Pricing and Price Regulation in a Customer-Owned Monopoly

Publication date: 19 March 2014
Research areas: Economic theory
Publication categories: Working papers

In the first part of the paper we study the pricing policies of a customer-owned firm in the absence of external regulation. The profit-sharing rule is a key element of the price choice and our analysis focuses on the two most common ones, uniform and proportional. The main result is that the self-discipline effect generally ensures the dominance of customer-ownership over investor-ownership in welfare terms, though under neither rule it is enough to attain the first-best in equilibrium. Then, customer-owned firms, like forprofit ones, need some external price regulation. In the second part we address this topic. We show first that the optimal regulatory policies for investor-owned service providers are not optimal for customerowned ones, and hence price regulation is affected by the ownership mode. Another factor that is shown to condition the effectiveness of regulation is the sharing rule. The paper closes with a few results on the optimal regulatory design for customer-owned firms.