Incomplete regulation, market competition and collusion
Regulators often do not regulate all firms competing in a given sector. Due to productsubstitutability, unregulated competitors have incentives to bribe regulated firms to have themoverstate their costs and produce less. The best collusion-proof contract entails distortions bothfor inefficient and efficient regulated firms (distortion ‘at the top’). But a contract inducingactive collusion may do better by allowing the regulator to ‘team up’ with the regulated firmto indirectly tax its competitor. The best such contract is characterized. It is such that theunregulated firm pays the regulated one to have it truthfully reveals its inefficiency.
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Volume (Year): 10 (2006)
Issue (Month): 2 (August)
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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.:
- R. Gary-Bobo & Y. Spiegel, 2003.
"Optimal state-contingent regulation under limited liability,"
THEMA Working Papers
2003-09, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
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- Gary-Bobo, Robert J. & Spiegel, Yossi, 2003. "Optimal State-Contingent Regulation under Limited Liability," CEPR Discussion Papers 3920, C.E.P.R. Discussion Papers.
- Green, Jerry & Laffont, Jean-Jacques, 1977. "Characterization of Satisfactory Mechanisms for the Revelation of Preferences for Public Goods," Econometrica, Econometric Society, vol. 45(2), pages 427-38, March.
- Laffont, Jean-Jacques & Martimort, David, 1998.
"Mechanism Design with Collusion and Correlation,"
IDEI Working Papers
81, Institut d'Économie Industrielle (IDEI), Toulouse.
- Caillaud, Bernard, 1990. "Regulation, competition, and asymmetric information," Journal of Economic Theory, Elsevier, vol. 52(1), pages 87-110, October.
- Lucia Quesada, 2005. "Collusion as an Informed Principal Problem," Game Theory and Information 0504002, EconWPA.
- Gary Biglaiser & Ching-to Albert Ma, 1995. "Regulating a Dominant Firm: Unknown Demand and Industry Structure," RAND Journal of Economics, The RAND Corporation, vol. 26(1), pages 1-19, Spring.
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