Competition policy, regulation and the institutional design of industry supervision

Cécile AUBERT () and JŽr™me POUYET
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JŽr™me POUYET: UNIVERSITE CATHOLIQUE DE LOUVAIN, Center for Operations Research and Econometrics (CORE)

No 2004022, Discussion Papers (REL - Recherches Economiques de Louvain) from Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES)

Abstract: We study the welfare impact of enforcing a competitive behavior from an unregulated fringe competing with a regulated dominant operator with imperfectly differentiated goods. The fringe is potentially collusive but may be supervised by a competition authority. We show that the complementarity/substitutability between regulation and competition policy strongly depends on the nature of the market interaction. Forcing the fringe to adopt a competitive behavior always benefits consumers. However, it also affects the amount of subsidy that must be provided to the regulated firm for cost-reimbursement purposes, which has a social cost when public funds are costly. With complements, antitrust intervention is always welfare-improving. It is also preferable with weak substitutes but is detrimental to welfare for strong substitutes.

Keywords: Regulation; Competition policy (search for similar items in EconPapers)
JEL-codes: L40 L51 (search for similar items in EconPapers)
Date: 2004-06-01
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Journal Article: Competition policy, regulation and the institutional design of industry supervision (2004)
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