Asymmetric Equilibria under Price-cap Regulation  Yasunori Okumura Faculty of Economics, Hannan University November 25, 2014 Abstract We discuss Cournot and Stackelberg duopoly models where the rms are regulated by a price-cap regulation. The symmetric and asymmetric Cournot equilibria under the price-cap regulation are characterized. Moreover, we show that a unique Stackelberg equilibrium exists and relate that to the Cournot equilibria. We present several comparative statics results with respect to the outcomes of the Cournot and Stackelberg models. Moreover, we consider an en- dogenous timing duopoly game where the rms engage in Stackelberg or Cournot competition depending on the pair of their actions in a preplay stage. Finally, we consider the welfare e/ect of a change in a price-cap level. When asymmetric equilibria are focused on, a reduction in a price-cap level can be socially harmful even if the price-cap level is more than the competitive price. Keywords: Price-cap regulations; Cournot competition; Stackelberg com- petition; Asymmetric equilibria; Endogenous role JEL classication codes: D43; L11; L51 1 Introduction In several industries such as oil, gas, electricity, railways, hospitals and airlines, rms have been regulated by price-caps. Especially, we can observe price-cap regulations in the telecommunications industries of many countries and regions. 1 In this paper, we discuss the e/ect of a change in a price-cap level on market outcomes. In our model, rms engage in Cournot or Stackelberg competition and the market price of the good must be less than a certain price-cap level.  An earlier version of this paper is presented at the ISS Industrial Organization Workshop at the University of Tokyo. I am grateful to the participants of the workshop, especially Toshihiro Matsumura, Dan Sasaki and Taiju Kitano for their comments and suggestions. 1 See, for instance, Sappington (2002). 1