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The regulation of markets with interdependent demands

Listed author(s):
  • Fiocco, Raffaele
  • Scarpa, Carlo

We examine the regulatory design of a market for products with interdependent demands, where regulated firms provide (imperfect) substitutes and can engage in lobbying activities. Under centralized regulation, a single regulator is established, whose mandate is to maximize aggregate welfare. Under decentralized regulation, each firm is assigned to a regulator charged with maximizing the welfare generated by that firm. With asymmetric cost information, centralized regulation results in a negative externality between firms when engaging in lobbying. Decentralized regulation removes this externality and reduces lobbying. Since this benefit comes at the cost of miscoordination between regulators, a trade-off results which favors decentralized regulation when goods are substitutes enough.

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File URL: http://www.sciencedirect.com/science/article/pii/S0167624514000110
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Article provided by Elsevier in its journal Information Economics and Policy.

Volume (Year): 27 (2014)
Issue (Month): C ()
Pages: 1-12

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Handle: RePEc:eee:iepoli:v:27:y:2014:i:c:p:1-12
DOI: 10.1016/j.infoecopol.2014.02.001
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505549

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