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Integration Effects of Firms Subject to Regulation

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  • Yoram Peles
  • Eytan Sheshinski

Abstract

The standard model of the regulated firm assumes that the monopoly produces one homogeneous output with two inputs, capital and labor. However, many firms subject to regulatory constraint, particularly public utilities, produce a multitude of products, with related or unrelated demands. This paper explores the modifications required by the latter case in the standard Averch-Johnson model. The effects of mergers between regulated monopolies is also studied. It is shown that, in general, mergers lead to changes in the composition of outputs and the factors that determine the direction of these changes are analyzed. Finally, it is proved that the well-known result concerning the desirability of regulation can be extended, when demands are independent, to the many-good case.

Suggested Citation

  • Yoram Peles & Eytan Sheshinski, 1976. "Integration Effects of Firms Subject to Regulation," Bell Journal of Economics, The RAND Corporation, vol. 7(1), pages 308-313, Spring.
  • Handle: RePEc:rje:bellje:v:7:y:1976:i:spring:p:308-313
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    Cited by:

    1. Mirucki, Jean, 1980. "Vérification des conditions d'efficacité dans la production chez Bell Canada [Checking the conditions of efficient production in Bell Canada]," MPRA Paper 30147, University Library of Munich, Germany, revised Jun 1980.
    2. Mirucki, Jean, 1980. "Comportement de l'entreprise réglementée: étude de l'hypothèse Averch-Johnson [Behavior of the Regulated Firm: A Study of the Averch-Johnson Hypothesis]," MPRA Paper 27669, University Library of Munich, Germany, revised 1982.

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