Abstract

This paper builds on the theory of regulation developed by Stigler and Peltzman.
According to these authors, a regulator chooses his/her strategy seeking to maximize political
support from consumers and producers, viewing welfare and efficiency as secondary issues.
This process determines a regulated price that is between the competitive and monopolistic
levels. Our paper develops a modified version of Peltzman’s model by considering the idea
that the regulator’s behaviour might change with the proximity of elections. The addition
of a timing dimension to the problem and its implication for consumers, producers and the
regulator’s behavior suggest that the optimal strategy now implies in a price cycle in regulated
industries. The regulator has incentives to impose higher prices when elections are relatively
far ahead and lower (real) prices in periods that immediately precede an important election.
We show that the Brazilian gasoline market between 1969-1984 supports our results.

JEL Classification: E31; D72; L71.