INVESTMENT WITHOUT REGULATORY COMMITMENT - THE CASE OF ELASTIC DEMAND

This paper analyzes a regulation game with asymmetric information and lack of commitment. It expands Besanko and Spulber's (1989) framework to the case of elastic demands using a generalized Nash solution. It i s found that the most important property of the equilibrium with inela stic demand is not carried over to the elastic demand case, i.e., inco mplete information worsens underinvestment, contrasting to Besanko and Spulber's result.