Conglomerates and Regulation

22 Pages Posted: 10 May 2016

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

Date Written: July 2016

Abstract

Conglomerates operating integrated productions in different regulated and unregulated sectors may benefit of scope economies. However, the precise size of these synergies is often unknown to both rival firms and regulators. We show that the conglomerate's private information on scope economies may negatively affect both the regulated and the unregulated sectors depending on the precise nature of competition (strategic substitutes or complements). We also unveil a novel effect of regulation that involves an informational externality to the conglomerate's rivals. Notwithstanding these complications, and independently of the nature of competition, we show that in our model it is desirable, as for welfare, to let the firm run integrated productions, unless diseconomies of scope may realize.

JEL Classification: L51, L43, L52

Suggested Citation

Calzolari, Giacomo and Scarpa, Carlo, Conglomerates and Regulation (July 2016). Economic Inquiry, Vol. 54, Issue 3, pp. 1648-1669, 2016. Available at SSRN: https://ssrn.com/abstract=2777793 or http://dx.doi.org/10.1111/ecin.12338

Giacomo Calzolari (Contact Author)

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

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Centre for Economic Policy Research (CEPR) ( email )

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United Kingdom

University of Bologna ( email )

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I-40126 Bologna
Italy

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

Carlo Scarpa

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

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