Cost-Plus Regulation (Antitrust) - Explained
What is Cost-Plus Regulation?
Written by J. Mance Gordon
Updated at April 23rd, 2024
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What is Cost-Plus Regulation?
Cost-plus regulation is where regulators calculate the average cost of production, added in an amount for the normal rate of profit the firm should expect to earn, and set the price for consumers accordingly. This method was known as cost-plus regulation.
Cost-plus regulation raises difficulties of its own. If producers receive reimbursement for their costs, plus a bit more, then at a minimum, producers have less reason to be concerned with high costs—because they can just pass them along in higher prices. Worse, firms under cost-plus regulation even have an incentive to generate high costs by building huge factories or employing many staff, because what they can charge is linked to the costs they incur.
Related Topics
- Market Structure
- Perfect Competition
- Bidding War
- Complements & Substitutes
- Substitution Effect
- Imperfect Competition
- Market Power
- Price Takers
- Price Makers
- Perfect Competition and Decision Making
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- Contestable Market Theory
- Highest Profit Point in a Perfectly Competitive Market
- Marginal Revenue
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- Profit Margin and Average Total Cost
- Break Even Point - Cost Curve
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- Short-Run Decisions Based Upon Costs in a Perfectly Competitive Market
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- Monopoly
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- How Monopolists Set Price with the Demand Curve
- Total Cost and Total Revenue for a Monopolist
- Marginal Revenue and Marginal Cost for a Monopolist
- Inefficiency of Monopoly
- Perfectly Competitive Market
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- Differentiated Products
- Perceived Demand for a Monopolistic Competitor
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