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Incomplete Regulation, Market Competition and Collusion

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  • Cécile Aubert

    (Crest)

  • Jerôme Pouyet

    (Crest)

Abstract

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.

Suggested Citation

  • Cécile Aubert & Jerôme Pouyet, 2004. "Incomplete Regulation, Market Competition and Collusion," Working Papers 2004-39, Center for Research in Economics and Statistics.
    • Handle: RePEc:crs:wpaper:2004-39
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    References listed on IDEAS

    as
    1. Robert Gary‐Bobo & Yossi Spiegel, 2006. "Optimal state‐contingent regulation under limited liability," RAND Journal of Economics, RAND Corporation, vol. 37(2), pages 431-448, June.
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    5. 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.
    6. Lucia Quesada, 2005. "Collusion as an Informed Principal Problem," Game Theory and Information 0504002, University Library of Munich, Germany.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Ajay Bhaskarabhatla & Priyatam Anurag & Chirantan Chatterjee & Enrico Pennings, 2021. "How Does Regulation Impact Strategic Repositioning by Firms Across Submarkets? Evidence from the Indian Pharmaceutical Industry," Strategy Science, INFORMS, vol. 6(3), pages 209-227, September.
    2. Aubert, Cécile & Falck, Oliver & Heblich, Stephan, . "Subsidizing National Champions: An Evolutionary Perspective," Chapters in Economics,, University of Munich, Department of Economics.
    3. Sara Biancini, 2010. "Incomplete Regulation, Competition, and Entry in Increasing Returns to Scale Industries," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 12(6), pages 1003-1026, December.
    4. 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.
    5. Marco Meireles & Paula Sarmento, 2009. "Incomplete Regulation, Asymmetric Information and Collusion-Proofness," FEP Working Papers 320, Universidade do Porto, Faculdade de Economia do Porto.
    6. Angela S. Bergantino & Etienne Billette De Villemeur & Annalisa Vinella, 2011. "Partial Regulation in Vertically Differentiated Industries," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 13(2), pages 255-287, April.
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    8. Antonio Estache & L. Wren-Lewis, 2008. "Towards a Theory of Regulation for Developing Countries: Following Laffont's Lead," Working Papers ECARES 2008_018, ULB -- Universite Libre de Bruxelles.

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    More about this item

    JEL classification:

    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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