chapter
5 Pages

Introduction

This introduction presents an overview of key concepts discussed in the subsequent chapters of this book. The book provides both a classification of rate-of-return regulation as part of a class of regulation methods, as well as a brief overview of the historical development of regulation in general, and rate-of-return regulation in particular. It provides an overview of the process and players of a typical rate hearing. The book focuses on the theoretical model of rate-of-return regulation put forth by Harvey Averch and Leland Johnson, as well as some of the key extensions and criticisms of this model. It then provides an analysis of research joint ventures when rate-of-return regulation is present. The model used here is a symmetric two-stage Nash equilibrium duopoly model of cost reducing R and D, in which firms choose either to cooperate or compete in the research market during the first stage, and cooperate or compete in the product output market in the second stage.