Is there 'Hope' for price cap regulation?

This article examines the problem of regulatory opportunism or strategic behavior by the regulator that undermines the performance of price cap regulation (PCR) without technically breaching the price cap commitment. Drawing from the experience with PCR in the telecommunications industry, this article contends that the Hope standard, a litmus test for governing the bounds of regulatory discretion under earnings regulation, cannot be used to rationalize regulatory opportunism under PCR without blurring the distinction between the two regimes. These findings may have implications for recent claims by incumbent firms that regulatory policies designed to foster competition may constitute a governmental taking. JEL Classification Codes: L51, L96

• Type: Journal
• Year: 2002
• Where: IEPOL
• Authors: Dennis L. Weisman
• Keywords: IEPOL 2002, Price Cap, Price Cap Regulation, Regulatory Opportunism