Regulating a Multi-Utility Firm

30 Pages Posted: 1 Oct 2007

See all articles by Giacomo Calzolari

Giacomo Calzolari

European University Institute - Economics Department (ECO); Centre for Economic Policy Research (CEPR); University of Bologna

Carlo Scarpa

University of Brescia; NERA Economic Consulting

Multiple version iconThere are 2 versions of this paper

Date Written: September 2007

Abstract

We study the regulation of a multi-utility, i.e. a utility firm that is also active in a competitive, unregulated sector. If the firm conducts its activities in the two markets jointly, it enjoys economies of scope whose magnitude is the firm's private information, unknown either to the regulator or to the rival firms. We characterize the unregulated market outcome (with price and quantity competition) and optimal regulation that involves an informational externality to the multi-utility's rivals.

Although joint conduct of multi-utility's activities generates scope economies, it also brings private information to the multi-utility, so that regulation is less efficient and the unregulated market too may be adversely affected. Nevertheless, we show that allowing the multi-utility to integrate productions is (socially) desirable, unless joint production is characterized by dis-economies of scope.

Keywords: Regulation, Competition, Asymmetric Information, Multi-utility, Scope economies, Informational externality

JEL Classification: L51, L43, L52

Suggested Citation

Calzolari, Giacomo and Scarpa, Carlo, Regulating a Multi-Utility Firm (September 2007). Available at SSRN: https://ssrn.com/abstract=1017748 or http://dx.doi.org/10.2139/ssrn.1017748

Giacomo Calzolari (Contact Author)

European University Institute - Economics Department (ECO) ( email )

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University of Bologna ( email )

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Carlo Scarpa

University of Brescia ( email )

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+39+030+2988+839/840 (Fax)

NERA Economic Consulting ( email )

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