The Bayesian approach to monopoly regulation after 40 years

Abstract

This paper surveys the monopoly regulation literature with the Bayesian approach. The literature builds on Baron and Myerson’s seminal 1982 paper, entitled “Regulating a Monopolist with Unknown Costs.” After presenting their contributions to the regulation literature, the paper discusses the main criticisms of their model, relating to either informational or commitment assumptions about the Bayesian regulator. The paper also briefly reviews some non-Bayesian incentive schemes, price-cap regulation, and several extensions and applications of Baron and Myerson’s regulatory model to highlight the evolution and scope of the new economics of regulation after 40 years. © 2024, The Author(s), under exclusive licence to Springer Science+Business Media, LLC, part of Springer Nature.