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Integration and Separation with Costly Demand Information

  • Elisabetta Iossa

    (Economics and Finance Section, School of Social Sciences, Brunel University; Centre for Market and Public Organization, (C.M.P.O.), and Universita' Tor Vergata.)

  • Francesca Stroffolini

    ()

    (University of Napoli “Federico II” and CSEF)

We consider an industry characterized by a regulated natural monopoly in the upstream market and Cournot competition with demand uncertainty in the unregulated downstream market. The realization of demand cannot be observed by the regulator, whilst it can be privately observed at some cost by the upstream monopolist. Information acquisition is also unobservable. We study whether it is better to allow the monopolist to operate in the downstream market (integration) or instead to exclude it (separation). We show that asymmetric information on demand favours separation but unobservability of information acquisition favours integration.

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Paper provided by Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy in its series CSEF Working Papers with number 170.

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Date of creation: 01 Jan 2007
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Publication status: Published in Review of Industrial Organization, 2012, Vol. 40, 4, pp 249-271.
Handle: RePEc:sef:csefwp:170
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  1. Cremer, J. & Khalil, F. & Rochet, J-C., 1997. "Contracts and productive information gathering," Discussion Paper Series In Economics And Econometrics 9707, Economics Division, School of Social Sciences, University of Southampton.
  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. Elisabetta Iossa & Patrick Legros, 2004. "Auditing and property rights," ULB Institutional Repository 2013/7028, ULB -- Universite Libre de Bruxelles.
  5. Armstrong, Mark & Sappington, David E.M., 2007. "Recent Developments in the Theory of Regulation," Handbook of Industrial Organization, Elsevier.
  6. 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.
  7. Vickers, John, 1995. "Competition and Regulation in Vertically Related Markets," Review of Economic Studies, Wiley Blackwell, vol. 62(1), pages 1-17, January.
  8. Iossa, Elisabetta & Stroffolini, Francesca, 2002. "Price cap regulation and information acquisition," International Journal of Industrial Organization, Elsevier, vol. 20(7), pages 1013-1036, September.
  9. David M Newbery, 2002. "Regulating Unbundled Network Utilities," The Economic and Social Review, Economic and Social Studies, vol. 33(1), pages 23-41.
  10. Dimitrova, Magdalena & Schlee, Edward E., 2003. "Monopoly, competition and information acquisition," International Journal of Industrial Organization, Elsevier, vol. 21(10), pages 1623-1642, December.
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