Regulation by Duopoly
AbstractThis paper analyzes, within the framework of the new regulatory economics that emphasizes asymmetries of information, the optimal structure of an industry. The duplication of fixed costs incurred in a duopoly structure may be socially justified in a static model by three effects: the sampling effect, the yardstick competition effect, and the increasing marginal cost effect. We show that in general, asymmetric information favors duopoly when the market structure is decided before firms discover their cost characteristics (a common situation in dual sourcing for procurement), and favors monopoly when the market structure is decided after firms discover their cost characteristics (the case of split-award auctions). Copyright 1992 by MIT Press.
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Bibliographic InfoPaper provided by Institut d'Économie Industrielle (IDEI), Toulouse in its series IDEI Working Papers with number 20.
Date of creation: 1992
Date of revision:
Publication status: Published in Journal of Economics and Management Strategy, vol. 1, n°3, Fall 1992, p. 507-533.
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