XF-BK0AWUM-E A theory of yardstick competition
Abstract
In the typical regulatory scheme a franchised monopoly has little incentive to reduce costs. This article proposes a mechanism in which the price the regulated firm receives depends on the costs of identical firms. In equilibrium each firm chooses a socially efficient level of cost reduction. The mechanism generalizes to cover heterogeneous firms with observable differences. Medicare's prospective reimbursement of hospitals by using diagnostically related groups is a scheme very similar to the one outlined here.
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Wiley (Business Strategy and the Environment) (1985). A theory of yardstick competition. XFID: XF-BK0AWUM-E. Retrieved from https://xframework.id/XFBK0AWUME
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