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Regulation By Duopoly

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  • Emmanuelle Auriol
  • Jean‐Jacques Laffont

Abstract

This paper analyzes, within the framework of the new regulatory economics that emphasizes asymmetries of information, the optimal structure of an industry. The duplication of fixed costs incurred in a duopoly structure may be socially justified in a static model by three effects: the sampling effect, the yardstick competition effect, and the increasing marginal cost effect. We show that in general, asymmetric information favors duopoly when the market structure is decided before firms discovers their cost characteristics (a common situation in dual sourcing for procurement), and favors monopoly when the market structure is decided after firms discover their cost characteristics (the case of split‐award auctions).

Suggested Citation

  • Emmanuelle Auriol & Jean‐Jacques Laffont, 1992. "Regulation By Duopoly," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 1(3), pages 507-533, September.
    • Handle: RePEc:bla:jemstr:v:1:y:1992:i:3:p:507-533
    DOI: 10.1111/j.1430-9134.1992.00507.x
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    References listed on IDEAS

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    1. Cremer, Jacques & McLean, Richard P, 1985. "Optimal Selling Strategies under Uncertainty for a Discriminating Monopolist When Demands Are Interdependent," Econometrica, Econometric Society, vol. 53(2), pages 345-361, March.
    2. Laffont, Jean-Jacques & Tirole, Jean, 1986. "Using Cost Observation to Regulate Firms," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 614-641, June.
    3. Emmanuelle Auriol & Jean‐Jacques Laffont, 1992. "Regulation By Duopoly," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 1(3), pages 507-533, September.
    4. McGuire, Thomas G. & Riordan, Michael H., 1995. "Incomplete information and optimal market structure public purchases from private providers," Journal of Public Economics, Elsevier, vol. 56(1), pages 125-141, January.
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