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Vertical Integration and Costly Demand Information in Regulated Network Industries

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Author Info

  • Elisabetta Iossa

    ()

  • Francesca Stroffolini

    ()

Abstract

We study how vertical integration in regulated network industries affects the acquisition and transmission of socially valuable information on demand. We consider a regulated upstream monopoly with downstream unregulated Cournot competition and demand uncertainty. Demand information serves to set the access price and to foster competition in the unregulated segment but demand realizations can be observed at some cost only by the upstream monopolist; information acquisition is also unobservable. We show that vertical integration favours acquisition of demand information because of the transmission of information generated by the public nature of the regulatory mechanism. This holds both when access to information is easier for the upstream firm and when it is easier for downstream firms.

(This abstract was borrowed from another version of this item.)

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File URL: http://hdl.handle.net/10.1007/s11151-012-9340-1
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Bibliographic Info

Article provided by Springer in its journal Review of Industrial Organization.

Volume (Year): 40 (2012)
Issue (Month): 4 (June)
Pages: 249-271

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Handle: RePEc:kap:revind:v:40:y:2012:i:4:p:249-271

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Web page: http://www.springerlink.com/link.asp?id=100336

Related research

Keywords: Access price regulation; Information acquisition; Integration; Separation; Vertically-related industries; D82; D83; L5;

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References

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  1. Khalil, F & Rochet, J-C, 1997. "Contracts and Productive Information Gathering," Discussion Papers in Economics at the University of Washington 97-16, Department of Economics at the University of Washington.
  2. João Vareda, 2007. "Access Regulation under Asymmetric Information about Demand," Working Papers 30, Portuguese Competition Authority.
  3. Cambini, Carlo & Valletti, Tommaso, 2003. "Investments and Network Competition," CEPR Discussion Papers 3829, C.E.P.R. Discussion Papers.
  4. Clark, Ephraim & Easaw, Joshy Z., 2007. "Optimal access pricing for natural monopoly networks when costs are sunk and revenues are uncertain," European Journal of Operational Research, Elsevier, vol. 178(2), pages 595-602, April.
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  9. Esther Hauk & Sjaak Hurkens, 1996. "Secret information acquisition in Cournot markets," Economics Working Papers 233, Department of Economics and Business, Universitat Pompeu Fabra, revised Aug 1997.
  10. Elisabetta Iossa & Patrick Legros, 2004. "Auditing and Property Rights," RAND Journal of Economics, The RAND Corporation, vol. 35(2), pages 356-372, Summer.
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  12. Severin Borenstein, 2002. "The Trouble With Electricity Markets: Understanding California's Restructuring Disaster," Journal of Economic Perspectives, American Economic Association, vol. 16(1), pages 191-211, Winter.
  13. Sjaak Hurkens & Nir Vulkan, 1996. "Information acquisition and entry," Economics Working Papers 155, Department of Economics and Business, Universitat Pompeu Fabra.
  14. Ingo Vogelsang, 2003. "Price Regulation of Access to Telecommunications Networks," Journal of Economic Literature, American Economic Association, vol. 41(3), pages 830-862, September.
  15. Caillaud, Bernard & Tirole, Jean, 2004. "Essential facility financing and market structure," Journal of Public Economics, Elsevier, vol. 88(3-4), pages 667-694, March.
  16. Vickers, John, 1995. "Competition and Regulation in Vertically Related Markets," Review of Economic Studies, Wiley Blackwell, vol. 62(1), pages 1-17, January.
  17. David Sappington, 2006. "Regulation in Vertically-Related Industries: Myths, Facts, and Policy," Review of Industrial Organization, Springer, vol. 28(1), pages 3-16, 02.
  18. Ian M. Dobbs, 2004. "Intertemporal price cap regulation under uncertainty," Economic Journal, Royal Economic Society, vol. 114(495), pages 421-440, 04.
  19. Iossa, Elisabetta & Stroffolini, Francesca, 2002. "Price cap regulation and information acquisition," International Journal of Industrial Organization, Elsevier, vol. 20(7), pages 1013-1036, September.
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Cited by:
  1. Salvatore Piccolo, 2011. "Communicating Vertical Hierarchies: the Adverse Selection Case," CSEF Working Papers 273, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.

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