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

Michael Polemis () and Konstantinos Eleftheriou

MPRA Paper from University Library of Munich, Germany

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.

Keywords: Bertrand; Cournot; Marginal cost pricing; Regulation; Vertical relations (search for similar items in EconPapers)
JEL-codes: L43 L51 (search for similar items in EconPapers)
Date: 2015-03-26
New Economics Papers: this item is included in nep-com and nep-reg
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https://mpra.ub.uni-muenchen.de/68726/1/MPRA_paper_68726.pdf original version (application/pdf)

Related works:
Journal Article: TO REGULATE OR TO DEREGULATE? THE ROLE OF DOWNSTREAM COMPETITION IN UPSTREAM MONOPOLY VERTICALLY LINKED MARKETS (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:68726

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