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Vertical Integration and Costly Demand Information in Regulated Network Industries

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Author Info
Elisabetta Iossa ()
Francesca Stroffolini ()

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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.

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Publisher Info
Paper provided by Centre for Economic Development and Institutions(CEDI), Brunel University in its series CEDI Discussion Paper Series with number 08-03.

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Length: 32 pages
Date of creation: Feb 2008
Date of revision:
Handle: RePEc:edb:cedidp:08-03

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  1. Kwoka, John E., 2002. "Vertical economies in electric power: evidence on integration and its alternatives," International Journal of Industrial Organization, Elsevier, vol. 20(5), pages 653-671, May. [Downloadable!] (restricted)
  2. 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. [Downloadable!]
  3. Elisabetta Iossa & Patrick Legros, 2004. "Auditing and Property Rights," RAND Journal of Economics, The RAND Corporation, vol. 35(2), pages 356-372, Summer.
  4. Hurkens, Sjaak & Vulkan, Nir, 2001. "Information acquisition and entry," Journal of Economic Behavior & Organization, Elsevier, vol. 44(4), pages 467-479, April. [Downloadable!] (restricted)
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  5. Tommaso M. Valletti & Carlo Cambini, 2005. "Investments and Network Competition," RAND Journal of Economics, The RAND Corporation, vol. 36(2), pages 446-468, Summer.
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  6. 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. [Downloadable!] (restricted)
  7. Michael A. Raith, 1993. "A General Model of Information Sharing in Oligopoly," STICERD - Theoretical Economics Paper Series 260, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE. [Downloadable!]
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  8. David M Newbery, 2002. "Regulating Unbundled Network Utilities," The Economic and Social Review, Economic and Social Studies, vol. 33(1), pages 23-41. [Downloadable!]
  9. Vickers, John, 1995. "Competition and Regulation in Vertically Related Markets," Review of Economic Studies, Blackwell Publishing, vol. 62(1), pages 1-17, January. [Downloadable!] (restricted)
  10. Armstrong, Mark & Sappington, David E.M., 2007. "Recent Developments in the Theory of Regulation," Handbook of Industrial Organization, Elsevier. [Downloadable!] (restricted)
  11. 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. [Downloadable!] (restricted)
  12. David Sappington, 2006. "Regulation in Vertically-Related Industries: Myths, Facts, and Policy," Review of Industrial Organization, Springer, vol. 28(1), pages 3-16, 02. [Downloadable!] (restricted)
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