Myopic Firm Behavior Thwarting Intent of Average-Revenue-Lagged Regulation

Recent papers have demonstrated that Average-Revenue-Lagged regulation (ARL) as applied to the single-product / multi-market firm is susceptible to strategic manipulation even leading to global profit maximum pricing. This paper illustrates that myopic behavior within ARL under appropriate conditions on product demands and production costs can also produce profit maximum prices thus undermining obvious regulatory intent. The possibility of this outcome is another significant criticism that may be leveled against this particular regulatory approach.