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Incomplete Regulation, Asymmetric Information and Collusion-Proofness

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Author Info
Marco Meireles () (Faculdade de Economia, Universidade do Porto)
Paula Sarmento () (CEF.UP, Faculdade de Economia, Universidade do Porto)

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Abstract

In an incomplete regulation framework the Regulator cannot replicate all the possible outcomes by himself since he has no influence on some firms present in the market. When facing asymmetric information regarding the regulated firm’s costs, it may be better for the Regulator to allow the other competitors to extract a truthful report from her through side-payments in a collusion and therefore the “Collusion-Proofness Principle” may not hold. In fact, by introducing an exogenous number of unregulated competitors, Social Welfare differences seem to favour a Collusion-Allowing equilibrium. However, such result will strongly depend on the relative importance given by the Regulator to the Consumer Surplus.

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Publisher Info
Paper provided by Universidade do Porto, Faculdade de Economia do Porto in its series FEP Working Papers with number 320.

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Length: 43 pages
Date of creation: Apr 2009
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Handle: RePEc:por:fepwps:320

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Related research
Keywords: Incomplete Regulation; Asymmetric Information; Collusion; Market Competition;

Find related papers by JEL classification:
L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Caillaud, Bernard, 1990. "Regulation, competition, and asymmetric information," Journal of Economic Theory, Elsevier, vol. 52(1), pages 87-110, October. [Downloadable!] (restricted)
  2. Jean-Jacques Laffont & David Martimort, 2000. "Mechanism Design with Collusion and Correlation," Econometrica, Econometric Society, vol. 68(2), pages 309-342, March.
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  3. Tangeras, Thomas P., 2002. "Collusion-proof yardstick competition," Journal of Public Economics, Elsevier, vol. 83(2), pages 231-254, February. [Downloadable!] (restricted)
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  4. Green, Jerry & Laffont, Jean-Jacques, 1977. "Characterization of Satisfactory Mechanisms for the Revelation of Preferences for Public Goods," Econometrica, Econometric Society, vol. 45(2), pages 427-38, March. [Downloadable!] (restricted)
  5. Myerson, Roger B, 1979. "Incentive Compatibility and the Bargaining Problem," Econometrica, Econometric Society, vol. 47(1), pages 61-73, January. [Downloadable!] (restricted)
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  6. Cécile Aubert & Jérôme Pouyet, 2006. "Incomplete regulation, market competition and collusion," Review of Economic Design, Springer, vol. 10(2), pages 113-142, August. [Downloadable!] (restricted)
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  7. Jean-Jacques Laffont & David Martimort, 1997. "Collusion under Asymmetric Information," Econometrica, Econometric Society, vol. 65(4), pages 875-912, July.
    Other versions:
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