On Regulation and Competition: Pros and Cons of a Diversified Monopolist
AbstractWe 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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Bibliographic InfoPaper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2009.55.
Date of creation: Jul 2009
Date of revision:
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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-07-28 (All new papers)
- NEP-COM-2009-07-28 (Industrial Competition)
- NEP-CTA-2009-07-28 (Contract Theory & Applications)
- NEP-IND-2009-07-28 (Industrial Organization)
- NEP-REG-2009-07-28 (Regulation)
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