This paper studies the optimal regulatory policy in a marker where ent
ry may occur. In the event of entry, the regulator regulates the incum
bent, but not the entrant. We show that the effect of entry on prices
depends on the length of the interval between regulatory reviews: if t
he gap is long, then the market outcome following entry has a higher p
rice than it would have with a shorter gap. (C) 1997 Elsevier Science
S.A.