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On Regulation and Competition: Pros and Cons of a Diversified Monopolist

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Author Info
Carlo Scarpa (University of Brescia)
Giacomo Calzolari (University of Bologna)

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Abstract

We study the regulation of a firm which supplies a regulated service while also operating in a competitive, unregulated sector. If the firm conducts its activities in the two markets jointly, it enjoys economies of scope whose size is the firm’s private information, unknown either to the regulator or to the rival firms. We characterize the unregulated market outcome (with price and quantity competition) and optimal regulation that involves an informational externality to the competitors. Although joint conduct of the activities generates scope economies, it also entails private information, so that regulation is less efficient and the unregulated market too may be adversely affected. Nevertheless, we show that allowing the firm to integrate productions is (socially) desirable, unless joint production is characterized by dis-economies of scope.

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Publisher Info
Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2009.55.

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Date of creation: Jul 2009
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Handle: RePEc:fem:femwpa:2009.55

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Related research
Keywords: Regulation; Competition; Asymmetric Information; Conglomerate Firms; Multiutility; Scope Economies; Informational Externality;

Find related papers by JEL classification:
L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
L43 - Industrial Organization - - Antitrust Issues and Policies - - - Legal Monopolies and Regulation or Deregulation
L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods

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  8. Lewis, Tracy R & Sappington, David E M, 1989. "An Informational Effect When Regulated Firms Enter Unregulated Markets," Journal of Regulatory Economics, Springer, vol. 1(1), pages 35-45, March.
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  11. 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)
  12. Sakai, Yasuhiro, 1985. "The value of information in a simple duopoly model," Journal of Economic Theory, Elsevier, vol. 36(1), pages 36-54, June. [Downloadable!] (restricted)
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  15. Giovanni Fraquelli & Massimiliano Piacenza & Davide Vannoni, 2004. "Scope and scale economies in multi-utilities: evidence from gas, water and electricity combinations," Applied Economics, Taylor and Francis Journals, vol. 36(18), pages 2045-2057, October. [Downloadable!] (restricted)
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