We examine the investment decisions of regulated firms in a sequential-equilibrium model under asymmetric information. The regulator is unable to commit to a pricing policy, unlike mechanism-design models, but sets rates after observing the firm's investment. The information conveyed by the...

This article characterizes the optimal procurement contract for a monopsonistic purchaser who contracts with a risk-averse supplier with private information about his costs and who contributes an unobservable effort. The costs incurred by the supplier may be uncertain, and the purchaser has...

We consider the incentives for oligopolistic manufacturers to adopt exclusive dealing. Manufacturers producing differentiated brands can choose to distribute through exclusive retail dealerships or nonexclusive dealerships. With nonexclusive dealing, manufacturers face an interbrand externality...

The article analyzes a model of a regulated firm that is better informed about its cost function than is the regulator. By auditing at a cost, however, the regulator is assumed to be able to observe the realized cost of the firm. If the regulator "finds" that the firm had misrepresented its...

Empirical evidence suggests that there are substantial and persistent differences in the sizes of firms in most industries. We propose a dynamic model of capacity accumulation that is consistent with the observed facts. The model highlights the mode of product market competition and the extent...

Psychological and experimental evidence, as well as a wealth of anecdotal examples, suggests that firms may confound fixed, sunk, and variable costs, leading to distorted pricing decisions. This article investigates the extent to which market forces and learning eventually eliminate these...

We examine the equilibrium price, investment, and capital structure of a regulated firm using a sequential model of regulation. We show that the firm's capital structure has a significant effect on the regulated price. Consequently, the firm chooses its equity and debt strategically to affect...

The regulated firm's choice of capital structure is affected by countervailing incentives: the firm wishes to signal high value to capital markets to boost its market value while also signalling high cost to regulators to induce rate increases. When the firm's investment is large, countervailing...

This article studies pricing for natural monopolies by using a cooperative game of joint production. Outputs are allocated by a price system. We introduce the concept of the second-best core, which is a subset of the set of zero-profit, second-best Pareto-optimal prices. Prices are such that no...