The regulation of markets with interdependent demands

Raffaele Fiocco and Carlo Scarpa

Information Economics and Policy, 2014, vol. 27, issue C, 1-12

Abstract: We examine the regulatory design of a market for products with interdependent demands, where regulated firms provide (imperfect) substitutes and can engage in lobbying activities. Under centralized regulation, a single regulator is established, whose mandate is to maximize aggregate welfare. Under decentralized regulation, each firm is assigned to a regulator charged with maximizing the welfare generated by that firm. With asymmetric cost information, centralized regulation results in a negative externality between firms when engaging in lobbying. Decentralized regulation removes this externality and reduces lobbying. Since this benefit comes at the cost of miscoordination between regulators, a trade-off results which favors decentralized regulation when goods are substitutes enough.

Keywords: Asymmetric information; Energy markets; Lobbying; Public transportation; Regulation (search for similar items in EconPapers)
JEL-codes: D82 L51 (search for similar items in EconPapers)
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:eee:iepoli:v:27:y:2014:i:c:p:1-12

DOI: 10.1016/j.infoecopol.2014.02.001

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