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Partial Regulation and cost allocation in multimarket utilities

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  • Chaaban, J.M.

Abstract

This paper derives optimal regulatory schemes for partially regulated multimarket utilities, both in a context of complete and asymmetric information. The effects of this optimal price structure regulation on competition in the unregulated segment are explored in a context of Cournot and Bertrand oligopoly. It is shown that although Fully Distributed Cost (FDC) can be a good instrument in a partial regulation context with full information, it offers under asymmetric information an opportunity for the multimarket incumbent to engage in strategic accounting manipulation by misreporting true marginal costs : costs are inflated in the regulated segment and competition is harmed in the unregulated segment. The incremental cost rule is thus compared to the FDC one in terms of overall welfare effects, based on the characteristics of this incentive behavior. Accounting manipulation is also studied within Competition Policy issues, where the anti-competivite effects of possible regulatory failure are highlighted. ...French Abstract : Ce papier présente une analyse normative de la régulation partielle, oû des mécanismes de régulations optimaux dans des entreprises multi marchés horizontalement intégrées et partiellement régulées sont étudiés. On montre que l'allocation des coûts est un instrument efficace pour le régulateur, en comparant la politique des Coûts Totalement Distribués (Fully Distributed Cost FDC) à celle du Coût Incrémental (Incremental Cost IC). La manipulation stratégique comptable est aussi exposée, lorsque certains coûts ne sont pas observés avec certitude ; et l'effet des mécanismes de régulation sur le marché non régulé est mis en évidence. On montre en particuliers comment des politiques de régulation myopes peuvent avoir des effets anti-concurrentiels. L'interaction entre Régulation Partielle et Politique de la Concurrence est mis en évidence par un cas d'étude dans le secteur postal en Allemagne : UPS vs. Deutsche Post AG

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Bibliographic Info

Paper provided by French Institute for Agronomy Research (INRA), Economics Laboratory in Toulouse (ESR Toulouse) in its series Economics Working Paper Archive (Toulouse) with number 54.

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Length: 38 p.
Date of creation: 2004
Date of revision:
Handle: RePEc:rea:inrawp:54

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Keywords: REGULATION; COST ALLOCATION; ACCOUNTING; ASYMMETRIC INFORMATION; ANTITRUST POLICY; MULTIMARKET UTILITIES ; POLITIQUE ECONOMIQUE; POLITIQUE PUBLIQUE; OLIGOPOLE; CONCURRENCE ECONOMIQUE ; REGULATION;

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Cited by:
  1. Carlo Scarpa & Giacomo Calzolari, 2009. "On Regulation and Competition: Pros and Cons of a Diversified Monopolist," Working Papers 2009.55, Fondazione Eni Enrico Mattei.

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