Incomplete Regulation, Market Competition and Collusion

Cécile AUBERT () and Jerome Pouyet

No 2004-39, Working Papers from Centre de Recherche en Economie et Statistique

Abstract: Regulators often do not regulate all firms competing in a given sector. Due to productsubstitutability, unregulated competitors have incentives to bribe regulated firms to have themoverstate their costs and produce less. The best collusion-proof contract entails distortions bothfor inefficient and efficient regulated firms (distortion ‘at the top’). But a contract inducingactive collusion may do better by allowing the regulator to ‘team up’ with the regulated firmto indirectly tax its competitor. The best such contract is characterized. It is such that theunregulated firm pays the regulated one to have it truthfully reveals its inefficiency.

Date: 2004
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Journal Article: Incomplete regulation, market competition and collusion (2006)
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