Was Chadwick right?
AbstractIn this paper, we evaluate the scope of Chadwick’s claim on the superiority of competition for the market over competition in the market under incomplete information. We firstly characterize the expected outcome achieved under competition in the market at a Cournot Bayesian-Nash equilibrium. Then we characterize the optimal expected outcome achieved under a competition for the market mechanism designed by a government facing a shadow cost of public funds. We show that a regulated monopoly selected by an auction mechanism results in higher expected welfare than does duopoly competition when the entry cost is low but that the opposite holds when the market size is small and the entry cost is high for some values of the shadow cost of public funds. These results are explained by the influence of adverse selection on the entry decision at the Cournot equilibrium and by the level of expected total fixed costs in both mechanisms. Copyright Springer Science+Business Media, LLC 2007
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Bibliographic InfoArticle provided by Springer in its journal Review of Industrial Organization.
Volume (Year): 30 (2007)
Issue (Month): 2 (March)
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Web page: http://www.springerlink.com/link.asp?id=100336
competition for the market; regulation; Chadwick; Cournot equilibrium; adverse selection; L11; L43; D44;
Find related papers by JEL classification:
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
- L43 - Industrial Organization - - Antitrust Issues and Policies - - - Legal Monopolies and Regulation or Deregulation
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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