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Formal and Informal Interactions in a Duopoly Model

Author

Listed:
  • Saïd Souam

    (EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique)

  • Kahina Cherfi-Feroukhi

Abstract

This article theoretically analyzes the interactions between formal and informal firms in a vertically differentiated duopoly in which a regulatory authority intervenes to control the compliance of the firms to the law. In our simple framework, it turns out that it is never optimal to deter completely the informal firm from entering the market. This is mainly due to a production expansion effect and to an increased price competition, which increase the consumers' surplus. Moreover, it appears that a complete 'laissez-faire' policy is never optimal.

Suggested Citation

  • Saïd Souam & Kahina Cherfi-Feroukhi, 2019. "Formal and Informal Interactions in a Duopoly Model," Post-Print hal-02133986, HAL.
    • Handle: RePEc:hal:journl:hal-02133986
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    References listed on IDEAS

    as
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    JEL classification:

    • L5 - Industrial Organization - - Regulation and Industrial Policy

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