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Incomplete Regulation, Asymmetric Information and Collusion-Proofness

Marco Meireles () and Paula Sarmento ()
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Marco Meireles: Faculdade de Economia, Universidade do Porto

FEP Working Papers from Universidade do Porto, Faculdade de Economia do Porto

Abstract: In an incomplete regulation framework the Regulator cannot replicate all the possible outcomes by himself since he has no influence on some firms present in the market. When facing asymmetric information regarding the regulated firm’s costs, it may be better for the Regulator to allow the other competitors to extract a truthful report from her through side-payments in a collusion and therefore the “Collusion-Proofness Principle” may not hold. In fact, by introducing an exogenous number of unregulated competitors, Social Welfare differences seem to favour a Collusion-Allowing equilibrium. However, such result will strongly depend on the relative importance given by the Regulator to the Consumer Surplus.

Keywords: Incomplete Regulation; Asymmetric Information; Collusion; Market Competition (search for similar items in EconPapers)
JEL-codes: L41 L51 D82 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com, nep-cta and nep-mic
Date: 2009-04
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