Multiproduct price regulation under asymmetric information

We discuss the regulation of a multiproduct monopolist when the firm has pr ivate information about cost or demand conditions. The regulator offers the firm a set of prices from which to choose. When there is private informati on only about costs, the firm should always have a degree of discretion ove r its pricing policy. When uncertainty concerns demand, whether discretion is desirable depends on how demand elasticities vary with the scale of dema nds. If a positive demand shock is associated with a reduction in the marke t elasticity, discretion is good for overall welfare; otherwise it is not.