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Research

Informational Regulation of Public Good Monopolists

• Abstract: Consider a monopolist who sells a public good to a group of buyers with private information about their valuations, using an optimal mechanism subject to the ex-post constraints. It is a received intuition that outcomes would be inefficient due to the seller’s market power and the buyers’ free-riding. This paper explores an informational solution to this issue by solving the regulator’s problem, an information design problem preceding the monopolist’s mechanism design stage. The regulator’s solution is an information structure that maximizes buyers’ expected payoffs in an optimal mechanism. The regulator’s solution silences the impact of free-riding, yielding an optimal mechanism that always sells the public good. Furthermore, it sufficiently limits the seller’s market power, limiting his expected profit to a finite level given any number of buyers.