The Scope for Collusion and Competition in a Regulated Vertically Integrated Industry

D Damania

Bulletin of Economic Research, 1996, vol. 48, issue 3, 253-64

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 beneficial 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. Copyright 1996 by Blackwell Publishing Ltd and the Board of Trustees of the Bulletin of Economic Research

Date: 1996
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