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Access Price Cap Mechanisms and Industry Structure with Information Acquisition

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Author Info
Francesca Stroffolini () (University of Napoli “Federico II” and CSEF)
Abstract

This paper considers a network industry characterized by an upstream natural monopoly with cost uncertainty, regulated through an access price mechanism, and an unregulated downstream market with Cournot competition. The upstream monopolist can acquire information on the upstream cost while the information acquisition is prohibitively costly for the regulator and downstream firms. The information acquisition is also unobservable. I investigate how the presence of costly and socially valuable information on the upstream cost affects the desirability of allowing the upstream monopolist to produce in the downstream market (integration) rather than excluding it (separation). I show that when the upstream monopolist is regulated only through an access price cap, the information acquisition problem provides an argument in favour of vertical integration. However, when the regulator also obliges the upstream monopolist to share her access profits with consumers, a bias emerges in favour of separation via the impact of the access-profit sharing plan on the upstream monopolist's incentives to transmit information to her rival in the downstream market.

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Publisher Info
Paper provided by Centre for Studies in Economics and Finance (CSEF), University of Salerno, Italy in its series CSEF Working Papers with number 193.

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Date of creation: 01 Jan 2008
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Handle: RePEc:sef:csefwp:193

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Related research
Keywords: access price cap mechanisms integration separation information acquisition.

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Find related papers by JEL classification:
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information
D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
L5 - Industrial Organization - - Regulation and Industrial Policy

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References listed on IDEAS
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  1. Iossa, Elisabetta & Stroffolini, Francesca, 2002. "Price cap regulation and information acquisition," International Journal of Industrial Organization, Elsevier, vol. 20(7), pages 1013-1036, September. [Downloadable!] (restricted)
  2. Laffont, Jean-Jacques & Tirole, Jean, 1996. "Creating Competition through Interconnection: Theory and Practice," Journal of Regulatory Economics, Springer, vol. 10(3), pages 227-56, November.
  3. Cremer, Jacques & Khalil, Fahad & Rochet, Jean-Charles, 1998. "Contracts and Productive Information Gathering," Games and Economic Behavior, Elsevier, vol. 25(2), pages 174-193, November. [Downloadable!] (restricted)
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  4. Fried, Dov, 1984. "Incentives for Information Production and Disclosure in a Duopolistic Environment," The Quarterly Journal of Economics, MIT Press, vol. 99(2), pages 367-81, May. [Downloadable!] (restricted)
  5. Elisabetta Iossa & Francesca Stroffolini, 2007. "Integration and Separation with Costly Demand Information," The Centre for Market and Public Organisation 07/167, Department of Economics, University of Bristol, UK. [Downloadable!]
    Other versions:
  6. Michael A. Raith, 1993. "A General Model of Information Sharing in Oligopoly," STICERD - Theoretical Economics Paper Series 260, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE. [Downloadable!]
    Other versions:
  7. Stephen Littlechild, 2003. "Reflections on Incentive Regulation," Review of Network Economics, Concept Economics, vol. 2(4), pages 289-315, December. [Downloadable!]
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This page was last updated on 2008-9-26.

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