THE SCOPE FOR COLLUSION AND COMPETITION IN A REGULATED VERTICALLY INTEGRATED INDUSTRY*

D. Damania

Bulletin of Economic Research, 1996, vol. 48, issue 3, 253-264

Abstract: This paper investigates the competitive implications of input price controls in a partially regulated industry where a vertically integrated firm has exclusive control over an input with natural monopoly characteristics. Such industry structures are commonly encountered in activities such as telecommunications, railways, electricity and water supply. It is shown that in a Cournot game such input price controls are unambiguously benefical to consumers. However, it is further demonstrated that there exist circumstances in which these controls may make the non‐integrated firm worse off. Thus if the objective of input price regulation is to protect the non‐integrated firm, such controls may prove to be counterproductive.

Date: 1996
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