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Network regulation using an agent

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Author Info

  • Jolian McHardy

    () (Department of Economics, The University of Sheffield)

  • Michael Reynolds
  • Stephen Trotter

Abstract

The general complexity of demand interrelationships including the co-existence of complements and substitutes make traditional methods of regulating network industries problematic. Collusive pricing is preferred to independent pricing on complementary sections of a network whilst the reverse is true where goods/services are substitutes. However, the costs of market failure in the context of complementary goods, in particular, make appropriate regulatory involvement in such industries all the more important. In this paper, we explore alternative competitive and regulatory strategies within a simple theoretical network with differentiated demands. We show that the employment of an independent profit-maximising agent may offer a partial solution to the problem of network regulation, yielding outcomes which involve all parties pursuing their own interests yet being desirable to both firms and a welfare-maximising social planner.

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File URL: http://www.shef.ac.uk/content/1/c6/06/58/60/SERP2007004.pdf
File Function: First version, 2007
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File URL: http://www.shef.ac.uk/content/1/c6/06/58/60/SERP2007004.pdf
File Function: Revised version, 2007
Download Restriction: no

Bibliographic Info

Paper provided by The University of Sheffield, Department of Economics in its series Working Papers with number 2007004.

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Length: 20 pages
Date of creation: Feb 2007
Date of revision: Feb 2007
Handle: RePEc:shf:wpaper:2007004

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Related research

Keywords: Networks; Regulation; Duopoly; Agent;

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  1. Else, P. K. & James, T. J., 1995. "Privatisation and the quality of rail services," Transportation Research Part A: Policy and Practice, Elsevier, vol. 29(6), pages 387-400, November.
  2. Economides, Nicholas & Salop, Steven C, 1992. "Competition and Integration among Complements, and Network Market Structure," Journal of Industrial Economics, Wiley Blackwell, vol. 40(1), pages 105-23, March.
  3. McHardy, Jolian & Trotter, Stephen, 2006. "Competition and deregulation: Do air passengers get the benefits?," Transportation Research Part A: Policy and Practice, Elsevier, vol. 40(1), pages 74-93, January.
  4. Jolian Mchardy, 2006. "Complementary Monopoly And Welfare: Is Splitting Up So Bad?," Manchester School, University of Manchester, vol. 74(3), pages 334-349, 06.
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