Price regulation and quality

* I am grateful to Jeffrey Bernstein for helpful discussions. This paper has also benefited from discussions with Irv Emmons, Neil Langland and staff members at numerous public service commissions. The usual caveat applies. Abstract A growing concern on the part of regulators is that price regulation may weaken incentives for investment in service quality. Participation by the firm in complementary, competitive markets may serve to temper this incentive. This analysis reveals that unlike revenue-share penalties that can [actually] reduce investment in quality, and profit-share penalties that can distort efficient levels of cost-reducing effort, information dissemination increases investment in quality without distorting the regulated firm's efficient investment in cost-reducing effort.