Laffont-Tirole model

The Laffont-Tirole model examines how regulators oversee monopolies to balance fair prices and quality without discouraging investment. It shows that when regulators set prices, they face a trade-off: setting prices too low risks discouraging the firm's investment and innovation, while setting them too high could exploit consumers. The model highlights that optimal regulation requires careful adjustment to incentivize firms to operate efficiently while protecting consumers. In essence, it provides a framework to understand the challenges regulators face in managing monopolistic firms to promote both efficiency and fairness.