The optimal industry structure in a vertically related market
We consider a vertically related market characterized by down- stream imperfect competition and by the monopolistic provision of an essential facility-based input, whose price is set by a social-welfare maximizing regulator. Our model shows that the regulatory knowl- edge about the cost for providing the monopolistic input crucially af- fects the design of the optimal industry structure. In particular, we compare ownership separation, which prevents a single company from having the control of both upstream and downstream operations, and legal separation, under which these activities are legally unbundled but common ownership is allowed. As long as the regulator has full infor- mation, the two industry patterns yield the same social welfare level. However, under asymmetric information about the input costs legal separation can make the whole society better off.
|Date of creation:||Apr 2010|
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- Felix Höffler & Sebastian Kranz, 2011.
"Imperfect legal unbundling of monopolistic bottlenecks,"
Journal of Regulatory Economics,
Springer, vol. 39(3), pages 273-292, June.
- Felix Höffler & Sebastian Kranz, 2007. "Imperfect Legal Unbundling of Monopolistic Bottlenecks," Bonn Econ Discussion Papers bgse16_2007, University of Bonn, Germany.
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"Deregulatory Takings and the Regulatory Contract,"
Cambridge University Press, number 9780521591591, December.
- Höffler, Felix & Kranz, Sebastian, 2011. "Legal unbundling can be a golden mean between vertical integration and ownership separation," International Journal of Industrial Organization, Elsevier, vol. 29(5), pages 576-588, September.
- Armstrong, Mark & Porter, Robert, 2007. "Preface to the Handbook of Industrial Organization, Volume 3," Handbook of Industrial Organization, Elsevier.
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- W. Kip Viscusi & Joseph E. Harrington & John M. Vernon, 2005. "Economics of Regulation and Antitrust, 4th Edition," MIT Press Books, The MIT Press, edition 4, volume 1, number 026222075x.
- Mark Armstrong & Robert Porter (ed.), 2007. "Handbook of Industrial Organization," Handbook of Industrial Organization, Elsevier, edition 1, volume 3, number 1.
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