On Regulation and Competition: Pros and Cons of a Diversified Monopolist

43 Pages Posted: 5 Aug 2009

See all articles by Carlo Scarpa

Carlo Scarpa

University of Brescia; NERA Economic Consulting

Giacomo Calzolari

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

Date Written: August 5, 2009

Abstract

We study the regulation of a firm which supplies a regulated service while also operating in a competitive, unregulated sector. If the firm conducts its activities in the two markets jointly, it enjoys economies of scope whose size 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 competitors. Although joint conduct of the activities generates scope economies, it also entails private information, so that regulation is less efficient and the unregulated market too may be adversely affected. Nevertheless, we show that allowing the firm to integrate productions is (socially) desirable, unless joint production is characterized by dis-economies of scope.

Keywords: Regulation, Competition, Asymmetric Information, Conglomerate Firms, Multiutility, Scope Economies, Informational Externality

JEL Classification: L51, L43, L52

Suggested Citation

Scarpa, Carlo and Calzolari, Giacomo, On Regulation and Competition: Pros and Cons of a Diversified Monopolist (August 5, 2009). FEEM Working Paper 55.2009. Available at SSRN: https://ssrn.com/abstract=1444431 or http://dx.doi.org/10.2139/ssrn.1444431

Carlo Scarpa (Contact Author)

University of Brescia ( email )

Via San Faustino 74B
Dipartimento di Scienze Economiche
25122 Brescia
Italy
+39+030+2988+833 (Phone)
+39+030+2988+839/840 (Fax)

NERA Economic Consulting ( email )

50 Main Street, 14th Floor
White Plains, NY 10606
United States

Giacomo Calzolari

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

Villa la Fonte
Via delle fontanelle 18
San Domenico di Fiesole, Florence 50014
Italy

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

University of Bologna ( email )

Piazza Scaravilli 2
I-40126 Bologna
Italy

HOME PAGE: http://sites.google.com/view/giacomo-calzolari

Register to save articles to
your library

Register

Paper statistics

Downloads
46
Abstract Views
529
PlumX Metrics