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Vertical Integration and Costly Demand Information in Regulated Network Industries

  • Elisabetta Iossa

    ()

  • Francesca Stroffolini

    ()

We study how vertical integration in regulated network industries affects the acquisition and transmission of socially valuable information on demand. We consider a regulated upstream monopoly with downstream unregulated Cournot competition and demand uncertainty. Demand information serves to set the access price and to foster competition in the unregulated segment but demand realizations can be observed at some cost only by the upstream monopolist; information acquisition is also unobservable. We show that vertical integration favours acquisition of demand information because of the transmission of information generated by the public nature of the regulatory mechanism. This holds both when access to information is easier for the upstream firm and when it is easier for downstream firms.

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File URL: http://www.brunel.ac.uk/__data/assets/pdf_file/0017/342701/CEDI_08-03.pdf
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Paper provided by Centre for Economic Development and Institutions(CEDI), Brunel University in its series CEDI Discussion Paper Series with number 08-03.

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Length: 32 pages
Date of creation: Feb 2008
Date of revision:
Handle: RePEc:edb:cedidp:08-03
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  1. Tommaso M. Valletti & Carlo Cambini, 2005. "Investments and Network Competition," RAND Journal of Economics, The RAND Corporation, vol. 36(2), pages 446-468, Summer.
  2. Sjaak Hurkens & Nir Vulkan, 1996. "Information acquisition and entry," Economics Working Papers 155, Department of Economics and Business, Universitat Pompeu Fabra.
  3. Esther Hauk & Sjaak Hurkens, 1996. "Secret information acquisition in Cournot markets," Economics Working Papers 233, Department of Economics and Business, Universitat Pompeu Fabra, revised Aug 1997.
  4. Caillaud, Bernard & Tirole, Jean, 2001. "Essential Facility Financing and Market Structure," CEPR Discussion Papers 2802, C.E.P.R. Discussion Papers.
  5. Iossa, Elisabetta & Stroffolini, Francesca, 2002. "Price cap regulation and information acquisition," International Journal of Industrial Organization, Elsevier, vol. 20(7), pages 1013-1036, September.
  6. Bester, Helmut & Strausz, Roland, 2001. "Contracting with Imperfect Commitment and the Revelation Principle: The Single Agent Case," Econometrica, Econometric Society, vol. 69(4), pages 1077-98, July.
  7. Cremer, J. & Khalil, F. & Rochet, J-C., 1997. "Contracts and Productive Information Gathering," Papers 97.468, Toulouse - GREMAQ.
  8. Ian M. Dobbs, 2004. "Intertemporal price cap regulation under uncertainty," Economic Journal, Royal Economic Society, vol. 114(495), pages 421-440, 04.
  9. Vareda, João, 2007. "Access Regulation under Asymmetric Information about Demand," FEUNL Working Paper Series wp525, Universidade Nova de Lisboa, Faculdade de Economia.
  10. Elisabetta Iossa & Patrick Legros, 2004. "Auditing and property rights," ULB Institutional Repository 2013/7028, ULB -- Universite Libre de Bruxelles.
  11. David Sappington, 2006. "Regulation in Vertically-Related Industries: Myths, Facts, and Policy," Review of Industrial Organization, Springer, vol. 28(1), pages 3-16, 02.
  12. David M Newbery, 2002. "Regulating Unbundled Network Utilities," The Economic and Social Review, Economic and Social Studies, vol. 33(1), pages 23-41.
  13. Kwoka, John E., 2002. "Vertical economies in electric power: evidence on integration and its alternatives," International Journal of Industrial Organization, Elsevier, vol. 20(5), pages 653-671, May.
  14. Ingo Vogelsang, 2003. "Price Regulation of Access to Telecommunications Networks," Journal of Economic Literature, American Economic Association, vol. 41(3), pages 830-862, September.
  15. Vickers, John, 1995. "Competition and Regulation in Vertically Related Markets," Review of Economic Studies, Wiley Blackwell, vol. 62(1), pages 1-17, January.
  16. Severin Borenstein, 2002. "The Trouble With Electricity Markets: Understanding California's Restructuring Disaster," Journal of Economic Perspectives, American Economic Association, vol. 16(1), pages 191-211, Winter.
  17. Dimitrova, Magdalena & Schlee, Edward E., 2003. "Monopoly, competition and information acquisition," International Journal of Industrial Organization, Elsevier, vol. 21(10), pages 1623-1642, December.
  18. Armstrong, Mark & Sappington, David E.M., 2007. "Recent Developments in the Theory of Regulation," Handbook of Industrial Organization, Elsevier.
  19. Clark, Ephraim & Easaw, Joshy Z., 2007. "Optimal access pricing for natural monopoly networks when costs are sunk and revenues are uncertain," European Journal of Operational Research, Elsevier, vol. 178(2), pages 595-602, April.
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