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To Regulate or to Deregulate? The Role of Downstream Competition in Upstream Monopoly Vertically Linked Markets

Michael Polemis () and Konstantinos Eleftheriou ()

MPRA Paper from University Library of Munich, Germany

Abstract: This paper attempts to cast light to the relationship between Cournot-Bertrand controversy and monopoly regulation. To this purpose, we use a simple model of a vertically linked market, where an upstream regulated natural monopoly is trading via two-part tariff contracts with a downstream duopoly. Combining our results to those of the existing literature on deregulated markets, we argue that when the downstream competition is in prices, efficiency dictates regulating the monopoly with a marginal cost based pricing scheme. However, this type of regulation leads to significant welfare loss, when the downstream market is characterized by Cournot competition.

Keywords: Bertrand; Cournot; Marginal cost pricing; Regulation; Vertical relations (search for similar items in EconPapers)
JEL-codes: L43 L51 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com and nep-reg
Date: 2015-03-26
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https://mpra.ub.uni-muenchen.de/68726/1/MPRA_paper_68726.pdf original version (application/pdf)

Related works:
Journal Article: TO REGULATE OR TO DEREGULATE? THE ROLE OF DOWNSTREAM COMPETITION IN UPSTREAM MONOPOLY VERTICALLY LINKED MARKETS (2018) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:68726

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