It is shown that a fixed cost of nominal price changes enhances the ability of firms to collude in an ologopolistic market for a homogeneous good. Nevertheless, harsh price competition with firms making no profit remains a possible outcome. The analysis focuses on stable symmetric steady states...

This paper extends the theory of irreversible investment under uncertainty to incorporate capacity constraints and uncertainty on the input price. In addition, no restriction on the demand elasticity value is imposed. Assuming input price follows a geometric Brownian motion, the optimal...

We show that a regulator can use diffuse information held by potential entrants in the market as a powerful incentive instrument even when neither government tranfers to firms nor the regulation of entrants is permitted. Optimal regulation involves a menu of price caps and price floors. The...