Why regulate prices? Some notes on the price cap methods

We consider some recent criticisms of price cap methods of regulation, suggesting that many theoretical arguments, based on the so-called Bayesian approach, do not in fact provide practicable alternatives. We then investigate the use of quantity regulatory methods, i.e. output floors, and find that on closer examination these methods seem less promising than one might have thought. As a preliminary conclusion, we retain the opinion that price caps still stand as a sound regulatory method.