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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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.:
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- Robert Gary‐Bobo & Yossi Spiegel, 2006.
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- Jean-Jacques Laffont & David Martimort, 2000. "Mechanism Design with Collusion and Correlation," Econometrica, Econometric Society, vol. 68(2), pages 309-342, March.