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Public Firms as Regulatory Instruments with Cost Uncertainty

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Author Info

  • Devon Garvie
  • Roger Ware

Abstract

We re-examine the regulatory role of a public firm in an environment of private but correlated information about industry costs. We study three regimes of mixed-market interaction involving both public and private firms: a symmetric Bayesian-Nash equilibrium, an asymmetric Bayesian equilibrium in which the public firm is able to commit to production before the private firms, and a mechanism in which the regulator designs an incentive-compatible schedule for the industry. We find that a public firm plays an important strategic informational role which strengthens its role as a disciplinary regulatory instrument. Further, we find that this strategic informational role is considerably enhanced as we move from indirect regulatory schemes to direct regulation.

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Bibliographic Info

Article provided by Canadian Economics Association in its journal Canadian Journal of Economics.

Volume (Year): 29 (1996)
Issue (Month): 2 (May)
Pages: 357-78

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Handle: RePEc:cje:issued:v:29:y:1996:i:2:p:357-78

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Postal: Canadian Economics Association Prof. Steven Ambler, Secretary-Treasurer c/o Olivier Lebert, CEA/CJE/CPP Office C.P. 35006, 1221 Fleury Est Montréal, Québec, Canada H2C 3K4
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Cited by:
  1. Benito Arruñada & Luis Vázquez & Giorgio Zanarone, 2009. "Institutional constraints on organizations: the case of Spanish car dealerships," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 30(1), pages 15-26.
  2. Arturs Kalnins & Francine Lafontaine, 1996. "The Characteristics of Multi-Unit Ownership in Franchising: Evidence from Fast-Food Restaurants in Texas," NBER Working Papers 5859, National Bureau of Economic Research, Inc.
  3. Johan Willner, 2006. "A Mixed Oligopoly Where Private Firms Survive Welfare Maximisation," Journal of Industry, Competition and Trade, Springer, vol. 6(3), pages 235-251, December.
  4. A. Brandão & S. Castro, 2007. "State-owned enterprises as indirect instruments of entry regulation," Journal of Economics, Springer, vol. 92(3), pages 263-274, December.

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