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Common Market with Regulated Firms


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  • Pierre-Philippe COMBES
  • Bernard CAILLAUD
  • Bruno JULLIEN


We examine the effect of bilateral trade in a concentrated industry under Cournot competition, when firms are regulated by national agencies who care about national social welfare. We allow for differences in costs and market sizes and for asymmetric information between regulatory agencies and regulated firms. A national regulatory policy may or may not be publicly observed by foreign competitors. We show that it is optimal to allow states to subsidize their domestic firms: bilateral trade improves the allocative efficiency and reduces the agency costs of regulation. Strategic trade policy effects that appear when regulatory contracts are public are beneficial to both states and reduce incentive costs as well as allocative inefficiencies. Results extend to the case of segmented markets with export costs when states are allowed to use export subsidies as well as to regulate domestic production. They also extend under perfect information to an arbitrary number of states and regulated firms, to the existence of private importing firms and of a not too large export market.

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Bibliographic Info

Article provided by ENSAE in its journal Annals of Economics and Statistics.

Volume (Year): (1997)
Issue (Month): 47 ()
Pages: 65-99

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Handle: RePEc:adr:anecst:y:1997:i:47:p:05

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Cited by:
  1. Cécile AUBERT & Jérôme POUYET, 2004. "Competition policy, regulation and the institutional design of industry supervision," Discussion Papers (REL - Recherches Economiques de Louvain), Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) 2004022, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  2. Debande, Olivier, 2001. "Deregulating and privatizing statutory monopolies," Journal of Economics and Business, Elsevier, Elsevier, vol. 53(2-3), pages 111-137.
  3. Cecile Aubert & Jerome Pouyet, 2000. "Collusion Under Asymmetric Information and Institutional Incompleteness," Econometric Society World Congress 2000 Contributed Papers, Econometric Society 0806, Econometric Society.
  4. Tangerås, Thomas P., 2012. "Optimal transmission regulation of an integrated energy market," Energy Economics, Elsevier, Elsevier, vol. 34(5), pages 1644-1655.
  5. Sara Biancini, 2008. "Regulating National Firms in a Common Market," CESifo Working Paper Series, CESifo Group Munich 2209, CESifo Group Munich.


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