Incomplete Regulation, Asymmetric Information and Collusion-Proofness
In an incomplete regulation framework the Regulator cannot replicate all the possible outcomes by himself since he has no influence on some firms present in the market. When facing asymmetric information regarding the regulated firm’s costs, it may be better for the Regulator to allow the other competitors to extract a truthful report from her through side-payments in a collusion and therefore the “Collusion-Proofness Principle” may not hold. In fact, by introducing an exogenous number of unregulated competitors, Social Welfare differences seem to favour a Collusion-Allowing equilibrium. However, such result will strongly depend on the relative importance given by the Regulator to the Consumer Surplus.
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- Caillaud, Bernard, 1990. "Regulation, competition, and asymmetric information," Journal of Economic Theory, Elsevier, vol. 52(1), pages 87-110, October.
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- Cécile Aubert & Jérôme Pouyet, 2006. "Incomplete Regulation, Market Competition and Collusion," Post-Print hal-00151744, HAL.
- Jean-Jacques Laffont & David Martimort, 2000. "Mechanism Design with Collusion and Correlation," Econometrica, Econometric Society, vol. 68(2), pages 309-342, March.
- Laffont, Jean-Jacques & Martimort, David, 1998. "Mechanism Design with Collusion and Correlation," IDEI Working Papers 81, Institut d'Économie Industrielle (IDEI), Toulouse.
- Jean-Jacques Laffont & David Martimort, 1997. "Collusion under Asymmetric Information," Econometrica, Econometric Society, vol. 65(4), pages 875-912, July.
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