Abstract: This paper,based on double marginalization problem of successive monopolistic upstream and downstream firms,analyses the pricing behavior of these firms under price-cap regulation and rate-of-return regulation when they aren’t suitable to integrating vertically because of high transaction cost.The authors think that the price of product will decrease under price-cap regulation and the price of product will increase under rate-of-return regulation.So they propose that quantity regulation is very important under rate-of-return regulation.

Key words: upstream firm, downstream firm, double marginalization, price regulation, product pricing