Regulation of Duopoly: Managed Competition vs Regulated Monopolies
This paper discusses the regulation of oligopolistic differentiated-product industries. The regulator can control prices and impose quantity restrictions, but cannot control the quality choices of the firms. We inquire about the optimal choice of regulatory regime-whether and under what conditions managed competition or segmentation of the market between regulated monopolies achieves better results. In the spatial duopoly model analyzed here, unhindered competition generally results in an inefficient allocation. When the regulator knows the technologies, optimal managed competition results in distortions of the quality choice, but an optimal regulated-monopolies regime achieves the first best outcome. When the regulator is uncertain about the technologies, neither of these methods yields the first-best outcome. The regulated-monopolies regime still tends to produce better quality choices, but managed competition tends to be more effective at extracting rents from the firms. The overall comparison depends on some finer details of the environment. Copyright (c) 1997 Massachusetts Institute of Technology.
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Volume (Year): 6 (1997)
Issue (Month): 4 (December)
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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Morton I. Kamien & Daniel R. Vincent, 1991. "Price Regulation and Quality of Service," Discussion Papers 920, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Auriol, Emmanuelle & Laffont, Jean-Jacques, 1992.
"Regulation by Duopoly,"
IDEI Working Papers
20, Institut d'Économie Industrielle (IDEI), Toulouse.
- Ching-to Ma & James Burgess, 1993.
"Quality competition, welfare, and regulation,"
Journal of Economics,
Springer, vol. 58(2), pages 153-173, June.
- James J. Anton & Dennis A. Yao, 1989. "Split Awards, Procurement, and Innovation," RAND Journal of Economics, The RAND Corporation, vol. 20(4), pages 538-552, Winter.
- James J. Anton & Paul J. Gertler, 2004. "Regulation, Local Monopolies and Spatial Competition," Journal of Regulatory Economics, Springer, vol. 25(2), pages 115-141, 03.
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