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To Regulate or to Deregulate? The Role of Downstream Competition in Upstream Monopoly Vertically Linked Markets

Author

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  • Polemis, Michael
  • Eleftheriou, Konstantinos

Abstract

This paper attempts to cast light to the relationship between Cournot-Bertrand controversy and monopoly regulation. To this purpose, we use a simple model of a vertically linked market, where an upstream regulated natural monopoly is trading via two-part tariff contracts with a downstream duopoly. Combining our results to those of the existing literature on deregulated markets, we argue that when the downstream competition is in prices, efficiency dictates regulating the monopoly with a marginal cost based pricing scheme. However, this type of regulation leads to significant welfare loss, when the downstream market is characterized by Cournot competition.

Suggested Citation

  • Polemis, Michael & Eleftheriou, Konstantinos, 2015. "To Regulate or to Deregulate? The Role of Downstream Competition in Upstream Monopoly Vertically Linked Markets," MPRA Paper 68726, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:68726
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    References listed on IDEAS

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    More about this item

    Keywords

    Bertrand; Cournot; Marginal cost pricing; Regulation; Vertical relations;

    JEL classification:

    • L43 - Industrial Organization - - Antitrust Issues and Policies - - - Legal Monopolies and Regulation or Deregulation
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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