Regulating a Monopolist with Unknown Demand
Abstract
Optimal regulatory policy is derived in a setting where the firm has better knowledge
of demand than the regulator. When marginal production costs increase with output,
the regulator can induce the firm to use its private information entirely in the social
interest. When marginal costs decline with output, however, the regulator is unable
to derive any benefit from the firm's superior knowledge, and a single price is established
that is invariant to demand.
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Tracy R. Lewis
Walter M. Upchurch, Jr. Distinguished Professor of Business Administration
Tracy Lewis is Professor of Economics at the Fuqua School of Business at Duke University,
where he holds the Black Chair in Economics. Professor Lewis founded the Innovation
Center at the University. Prior to joining the Duke University Faculty in 2003, he
served on the faculties at the University of Florida, at the California Institute
of Technology, the University of British Columbia, and the University of California,
Davis. Aside from academic employment, he has also held positions at the Fed
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