Question

The state of Connecticut sets a maximum fee that bail-bond businesses can charge for posting a given-size bond (Ayres and Waldfogel, 1994). The bail-bond fee is set at virtually the maximum amount allowed by law in cities with only one active firm (Plainville, 99% of the maximum; Stamford, 99%; and Wallingford, 99%). The price is as high in cities with a duopoly (Ansonia, 99.6%; Meriden, 98%; and New London, 98%). In cities with 3 or more firms, however, the price falls well below the maximum permitted price. The fees are only 54% of the maximum in Norwalk with 3 firms, 64% in New Haven with 8 firms, and 78% in Bridgeport with 10 firms. Give possible explanations based on the Cournot model for this pattern.



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  • CreatedNovember 13, 2014
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