Does Structure Dominate Regulation? The Case of an Input Monopolist
Stephen King ()
No 767, Department of Economics - Working Papers Series from The University of Melbourne
This paper constructs a simple repeated game model to analyze how industry outcomes alter if a regulated input monopolist is allowed to integrate into the downstream retail market. Integration helps overcome double marginalization-a feature well known in the existing literature. Unlike existing static models, however, integration also makes tacit collusion more difficult in a repeated game framework. If the regulated input price exceeds marginal cost, an integrated monopolist has an incentive to increase retail sales as this raises upstream profits. It will be less willing to engage in any tacitly collusive conduct in the downstream market and it has a greater incentive to cheat on any collusive arrangement. We show that these effects may dominate input price regulation. A social planner may prefer the upstream monopoly to participate in the downstream market, even if integration leads to a higher regulated input price. The anti-competitive effects of the higher input price are more than offset by the pro-competitive effects of integration.
Keywords: MONOPOLIES; GAMES; PRICES; MARKET (search for similar items in EconPapers)
JEL-codes: L12 L15 (search for similar items in EconPapers)
Pages: 31 pages
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://www.economics.unimelb.edu.au/downloads/wpapers-00-01/767.pdf [301 Moved Permanently]--> http://fbe.unimelb.edu.au/economics/downloads/wpapers-00-01/767.pdf [301 Moved Permanently]--> https://fbe.unimelb.edu.au/economics/downloads/wpapers-00-01/767.pdf)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:mlb:wpaper:767
Access Statistics for this paper
More papers in Department of Economics - Working Papers Series from The University of Melbourne Department of Economics, The University of Melbourne, 4th Floor, FBE Building, Level 4, 111 Barry Street. Victoria, 3010, Australia. Contact information at EDIRC.
Bibliographic data for series maintained by Dandapani Lokanathan ().