Network regulation using an agent

Jolian McHardy, Michael Reynolds and Stephen Trotter

No 2007004, Working Papers from The University of Sheffield, Department of Economics

Abstract: The general complexity of demand interrelationships including the co-existence of complements and substitutes make traditional methods of regulating network industries problematic. Collusive pricing is preferred to independent pricing on complementary sections of a network whilst the reverse is true where goods/services are substitutes. However, the costs of market failure in the context of complementary goods, in particular, make appropriate regulatory involvement in such industries all the more important. In this paper, we explore alternative competitive and regulatory strategies within a simple theoretical network with differentiated demands. We show that the employment of an independent profit-maximising agent may offer a partial solution to the problem of network regulation, yielding outcomes which involve all parties pursuing their own interests yet being desirable to both firms and a welfare-maximising social planner.

Keywords: Networks; Regulation; Duopoly; Agent (search for similar items in EconPapers)
JEL-codes: D43 L13 R48 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2007-02, Revised 2007-02
New Economics Papers: this item is included in nep-bec, nep-com, nep-net and nep-reg
References: View references in EconPapers View complete reference list from CitEc
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