Does structure dominate regulation? The case of an input monopolist
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Author
King, Stephen P.Date
2000-10University of Melbourne Author/s
King, StephenAffiliation
Economics and Commerce: Department of EconomicsMetadata
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PreprintCitations
King, Stephen P. (2000) Does structure dominate regulation? The case of an input monopolist.Access Status
Open AccessDescription
ISBN 0-7340-1708-1, Working Paper 767
Abstract
This paper constructs a simple repeated game model to analyze how industry outcomes alter if a regulated input monopolist is allowed to integrate into the downstream retail market. Integration helps overcome double marginalization — a feature well known in the existing literature. Unlike existing static models, however, integration also makes tacit collusion more difficultin a repeated game framework. If the regulated input price exceeds marginal cost, an integrated monopolist has an incentive to increase retail sales as this raises upstream profits. It will be less willing to engage in any tacitly collusive conduct in the downstream market and it has a greater incentive to cheat on any collusive arrangement. We show that these effects may dominate input price regulation. A social planner may prefer the upstream monopoly toparticipate in the downstream market, even if integration leads to a higher regulated input price. The anti-competitive effects of the higher input priceare more than offset by the pro-competitive effects of integrati
Keywords
Input monopoly; regulation; utility industries; Journal of Economic Literature Classification Numbers: L12; L51; monopoly; monopolization strategies; economics of regulationExport Reference in RIS Format
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