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Footloose Monopolies: Regulating a "National Champion"

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  • Calzolari, Giacomo
  • Scarpa, Carlo

Abstract

We analyze the design of optimal regulation of a domestic monopolist that also competes in an unregulated foreign market. We show how foreign activities by the regulated firm affect domestic regulation, consumers’ surplus and firm’s profits. Although expansion in unregulated foreign markets amplifies the regulatory distortions that are caused by the regulator’s limited information, we also show that allowing the firm to compete abroad does not necessarily harm domestic consumers and we analyze if and when the firm’s decision to expand abroad does in fact coincide with consumers’ interests in the regulated market.

Suggested Citation

  • Calzolari, Giacomo & Scarpa, Carlo, 2007. "Footloose Monopolies: Regulating a "National Champion"," CEPR Discussion Papers 6413, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:6413
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    References listed on IDEAS

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    1. Timothy Besley & Paul Seabright, 1999. "The effects and policy implications of state aids to industry: an economic analysis," Economic Policy, CEPR;CES;MSH, vol. 14(28), pages 13-53, April.
    2. Armstrong, Mark & Sappington, David E.M., 2007. "Recent Developments in the Theory of Regulation," Handbook of Industrial Organization, Elsevier.
    3. Calzolari, Giacomo & Pavan, Alessandro, 2006. "On the optimality of privacy in sequential contracting," Journal of Economic Theory, Elsevier, vol. 130(1), pages 168-204, September.
    4. Brander, James A. & Spencer, Barbara J., 1985. "Export subsidies and international market share rivalry," Journal of International Economics, Elsevier, vol. 18(1-2), pages 83-100, February.
    5. Helm, Dieter & Jenkinson, Tim, 1997. "The Assessment: Introducing Competition into Regulated Industries," Oxford Review of Economic Policy, Oxford University Press, vol. 13(1), pages 1-14, Spring.
    6. Guesnerie, Roger & Laffont, Jean-Jacques, 1984. "A complete solution to a class of principal-agent problems with an application to the control of a self-managed firm," Journal of Public Economics, Elsevier, vol. 25(3), pages 329-369, December.
    7. Qui, Larry D., 1994. "Optimal strategic trade policy under asymmetric information," Journal of International Economics, Elsevier, vol. 36(3-4), pages 333-354, May.
    8. John Vickers, 1995. "Competition and Regulation in Vertically Related Markets," Review of Economic Studies, Oxford University Press, vol. 62(1), pages 1-17.
    9. Giacomo Calzolari, 2004. "Incentive Regulation of Multinational Enterprises," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(1), pages 257-282, February.
    10. Stephen Martin & Paola Valbonesi, 2006. "State Aid to Business," Chapters,in: International Handbook on Industrial Policy, chapter 7 Edward Elgar Publishing.
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    Citations

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    Cited by:

    1. Stähler, Frank & Traub, Stefan, 2009. "Privatization and liberalization in vertically linked markets," TranState Working Papers 95, University of Bremen, Collaborative Research Center 597: Transformations of the State.
    2. Fiocco, Raffaele & Scarpa, Carlo, 2014. "The regulation of markets with interdependent demands," Information Economics and Policy, Elsevier, vol. 27(C), pages 1-12.
    3. Raffaele Fiocco, 2012. "Competition and regulation with product differentiation," Journal of Regulatory Economics, Springer, vol. 42(3), pages 287-307, December.
    4. Calzolari, Giacomo & Scarpa, Carlo, 2007. "Regulating a Multi-Utility Firm," CEPR Discussion Papers 6238, C.E.P.R. Discussion Papers.
    5. Carlo Scarpa & Giacomo Calzolari, 2009. "On Regulation and Competition: Pros and Cons of a Diversified Monopolist," Working Papers 2009.55, Fondazione Eni Enrico Mattei.
    6. repec:eee:ecmode:v:68:y:2018:i:c:p:450-460 is not listed on IDEAS
    7. Raffaele Fiocco & Dongyu Guo, 2015. "Mergers between regulated firms with unknown efficiency gains," Review of Economic Design, Springer;Society for Economic Design, vol. 19(4), pages 299-326, December.

    More about this item

    Keywords

    Foreign Competition; Multinational Enterprises; National Champions; Regulation;

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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