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Integration and Separation with Costly Demand Information

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  • Elisabetta Iossa

    (Economics and Finance Section, School of Social Sciences, Brunel University; Centre for Market and Public Organization, (C.M.P.O.), and Universita' Tor Vergata.)

  • Francesca Stroffolini

    ()
    (University of Napoli “Federico II” and CSEF)

Abstract

We consider an industry characterized by a regulated natural monopoly in the upstream market and Cournot competition with demand uncertainty in the unregulated downstream market. The realization of demand cannot be observed by the regulator, whilst it can be privately observed at some cost by the upstream monopolist. Information acquisition is also unobservable. We study whether it is better to allow the monopolist to operate in the downstream market (integration) or instead to exclude it (separation). We show that asymmetric information on demand favours separation but unobservability of information acquisition favours integration.

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Bibliographic Info

Paper provided by Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy in its series CSEF Working Papers with number 170.

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Date of creation: 01 Jan 2007
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Publication status: Published in Review of Industrial Organization, 2012, Vol. 40, 4, pp 249-271.
Handle: RePEc:sef:csefwp:170

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Keywords: Information acquisition; liberalization and separation;

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References

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  1. Cremer, J. & Khalil, F. & Rochet, J-C., 1997. "Contracts and productive information gathering," Discussion Paper Series In Economics And Econometrics 9707, Economics Division, School of Social Sciences, University of Southampton.
  2. Esther Hauk & Sjaak Hurkens, 2001. "Secret information acquisition in Cournot markets," Economic Theory, Springer, vol. 18(3), pages 661-681.
  3. Elisabetta Iossa & Patrick Legros, 2004. "Auditing and property rights," ULB Institutional Repository 2013/7028, ULB -- Universite Libre de Bruxelles.
  4. Iossa, Elisabetta & Stroffolini, Francesca, 2002. "Price cap regulation and information acquisition," International Journal of Industrial Organization, Elsevier, vol. 20(7), pages 1013-1036, September.
  5. David M Newbery, 2002. "Regulating Unbundled Network Utilities," The Economic and Social Review, Economic and Social Studies, vol. 33(1), pages 23-41.
  6. Armstrong, Mark & Sappington, David E.M., 2007. "Recent Developments in the Theory of Regulation," Handbook of Industrial Organization, Elsevier.
  7. Severin Borenstein, 2002. "The Trouble With Electricity Markets: Understanding California's Restructuring Disaster," Journal of Economic Perspectives, American Economic Association, vol. 16(1), pages 191-211, Winter.
  8. Sjaak Hurkens & Nir Vulkan, 1996. "Information acquisition and entry," Economics Working Papers 155, Department of Economics and Business, Universitat Pompeu Fabra.
  9. Vickers, John, 1995. "Competition and Regulation in Vertically Related Markets," Review of Economic Studies, Wiley Blackwell, vol. 62(1), pages 1-17, January.
  10. Dimitrova, Magdalena & Schlee, Edward E., 2003. "Monopoly, competition and information acquisition," International Journal of Industrial Organization, Elsevier, vol. 21(10), pages 1623-1642, December.
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Cited by:
  1. Francesca Stroffolini, 2008. "Access Price Cap Mechanisms and Industry Structure with Information Acquisition," CSEF Working Papers 193, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.

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