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Comparing the Costs and Benefits of Diversification by Regulated Firms

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  • Brennan, Timothy J
  • Palmer, Karen

Abstract

Previous work on the diversification of regulated firms has focused exclusively on either the costs of cross-subsidy or on the welfare gains resulting from economies of scope. Using theory and numerical simulations, we identify conditions under which gains from economies of scope and increased competition tend to outweigh the costs of cross-subsidization. We use a perfect competition model of the unregulated market to examine tradeoffs under economies of scope. Effects of increased competition are assessed using Cournot models with linear and constant elasticity demands. Diversification tradeoffs depend upon magnitudes of variables that regulators should be able to estimate or otherwise judge. Copyright 1994 by Kluwer Academic Publishers

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Bibliographic Info

Article provided by Springer in its journal Journal of Regulatory Economics.

Volume (Year): 6 (1994)
Issue (Month): 2 (May)
Pages: 115-36

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Handle: RePEc:kap:regeco:v:6:y:1994:i:2:p:115-36

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Web page: http://www.springerlink.com/link.asp?id=100298

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Cited by:
  1. Majumdar, Sumit K., 2010. "Institutional changes, firm size and wages in the telecommunications sector," Information Economics and Policy, Elsevier, vol. 22(3), pages 201-217, July.
  2. Palmer, Karen & Grausz, Samuel & Beasley, Blair & Brennan, Tim, 2012. "Putting a Floor on Energy Savings: Comparing State Energy Efficiency Resource Standards," Discussion Papers dp-12-11, Resources For the Future.
  3. Calzolari, Giacomo & Scarpa, Carlo, 2007. "Regulating a Multi-Utility Firm," CEPR Discussion Papers 6238, C.E.P.R. Discussion Papers.
  4. Sappington, David E. M., 2003. "Regulating horizontal diversification," International Journal of Industrial Organization, Elsevier, vol. 21(3), pages 291-315, March.
  5. Fernando T. Camacho & Flavio M. Menenzes, 2007. "The Contamination Problem in Utility Regulation," Discussion Papers Series 352, School of Economics, University of Queensland, Australia.
  6. David Sappington & J. Sidak, 2003. "Incentives for Anticompetitive Behavior by Public Enterprises," Review of Industrial Organization, Springer, vol. 22(3), pages 183-206, May.
  7. Carlo Scarpa & Giacomo Calzolari, 2009. "On Regulation and Competition: Pros and Cons of a Diversified Monopolist," Working Papers 2009.55, Fondazione Eni Enrico Mattei.

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