Environmental and Resource Economics

, Volume 61, Issue 3, pp 433–461 | Cite as

Can Poorly Informed Regulators Hinder Competition?

  • Ana Espínola-ArredondoEmail author
  • Félix Muñoz-García


This paper considers an entry-deterrence game in which environmental policy is set without perfectly observing the incumbent firm’s costs. We investigate if regulators, who can have an informational advantage relative to the potential entrant, support entry-deterring practices. The paper demonstrates that, while entry-deterring equilibria only emerge under restrictive conditions when the regulator is perfectly informed, these equilibria arise under larger settings as he becomes uninformed. Furthermore, we show that the regulator is willing to support the incumbent’s entry-deterring practices regardless of his degree of information if entry costs are sufficiently high. However, when entry costs are lower, the regulator only sustains this type of practices if he is poorly informed.


Entry deterrence Signaling Emission fees Informational advantage 

JEL Classification

D82 H23 L12 Q5 


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Copyright information

© Springer Science+Business Media Dordrecht 2014

Authors and Affiliations

  • Ana Espínola-Arredondo
    • 1
    Email author
  • Félix Muñoz-García
    • 2
  1. 1.School of Economic SciencesWashington State UniversityPullmanUSA
  2. 2.School of Economic SciencesWashington State UniversityPullmanUSA

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