Sara Biancini - Academia.edu (original) (raw)

Papers by Sara Biancini

The MIT Press eBooks, Jul 22, 2011

This chapter focuses on the impact of market integration in regulated markets. If the trade barri... more This chapter focuses on the impact of market integration in regulated markets. If the trade barriers are cleared, competition takes place at the supranational level and regulation acts at the national level. Efficient and competent firms benefit from market integration as they take this as an opportunity to expand their business and encourage efficiency in a competitive environment. Market integration may be welfare-reducing as it affects the budget constraint of regulated firms. The author further identifies and discusses how consumers, taxpayers, and firms get affected by this market integration. The author presents a model that reflects on the possibility of cooperation between regulators; this cooperation is a means through which to get away with globally suboptimal policies in which countries wish to pay transfers to inefficient national producers. The chapter offers a welfare analysis of the impact of integration in regulated markets. I first show that under complete information, competition is welfare enhancing if and only if the variable costs of the two firms are sufficiently different. The high-cost country benefits from a price reduction and the low-cost country from export revenues. When the costs are similar, the (negative) business stealing effect prevails. Competition is not very beneficial to consumers (small price effect), and it harms the national firm, and hence tax payers, through business stealing. Indeed market integration creates winners and losers in both countries: I thus identify and discuss the impact of market integration on consumers, taxpayers and firms. In particular, in the presence of asymmetric information, supranational competition produces nontrivial effects on the rent-seeking behavior of regulated firms. Competition is in general thought to put constraints on regulated firms and to limit their capability of capturing information rents. My analysis shows that this is not always the case and that the direction of the effects depends crucially on the stochastic distribution of the shocks on production costs.

World Development, Feb 1, 2023

The paper proposes an empirical analysis of the determinants of the adoption of Intellectual Prop... more The paper proposes an empirical analysis of the determinants of the adoption of Intellectual Property Rights (IPR) and their impact on innovation in manufacturing. The analysis is conducted with panel data covering 112 countries. First we show that IPR protection is U-shaped with respect to a country's market size and inverse-U-shaped with respect to the aggregated market size of its trade partners. Second, reinforcing IPR protection reduces on-the-frontier and inside-the-frontier innovation in developing countries, without necessarily increasing innovation at the global level.

Economic Modelling, 2018

In a supranational common market, national regulation can produce inefficiencies. National regula... more In a supranational common market, national regulation can produce inefficiencies. National regulators typically care only for domestic welfare and they tend to push national firms in the common market. When information about production costs is held privately by firms and is unknown to the regulator, competition between national and foreign firms can help to reduce the information rents captured by national producers and thus increase efficiency. This is more likely when the production costs of national and foreign firms are highly correlated, for instance because firms use similar technologies. In other cases, market share rivalry pushes national regulators to inefficiently expand the production of national firms, also increasing the information rents. When the ex-ante uncertainty of the production costs is high, the creation of a common market is more likely to increase expected welfare, as compared to separated national markets.

Journal of Industrial Economics, Jun 1, 2010

This paper considers the use of the alternating monopoly strategy (AMS) as a (tacit) collusion de... more This paper considers the use of the alternating monopoly strategy (AMS) as a (tacit) collusion device. We show that firms may choose this strategy in particular environments, when other collusive strategies are also feasible. In particular, we stress how the presence of an observable move (entry), distinct from the competitive stage (price setting), can serve as a coordination device, reducing the costs of monitoring in incomplete information environments. The paper thus shows that AMS may be preferable to classic market sharing collusion (MSE) and in some cases is the only collusive equilibrium. JEL classification: L41.

We build a theoretical model in which MNFs based in developed countries (the North) offshore prod... more We build a theoretical model in which MNFs based in developed countries (the North) offshore production of an intermediate good in a developing country (the South). MNFs can open a subsidiary in the country (vertical integration), or rely on independent contractors (outsourcing), through a licensing contract based on a Northern blueprint. The environment in the destination country is characterized by incomplete contracts and an imitation risk related to weak IPR enforcement. Our model shows that under reasonable assumptions on model parameters, a reinforcement of IPR in the South increases the relative share of imports from vertically integrated suppliers (and decrease the share of outsourcing to independent suppliers). The model predictions are tested using data on intra-firm trade of US multinationals provided by the U.S. Related-Party Trade database. JEL classification: F23, F12.

In this paper, we focus on the possibility of colluding in the time release of new goods. We cons... more In this paper, we focus on the possibility of colluding in the time release of new goods. We consider a framework in which firms face uncertain demands and have information about the presence of present or future competitors’ new products but not of their prices. We show that ATM (alternating time monopoly) may be Pareto improving with respect to classic tacit collusion and in some cases is the only equilibrium capable of sustaining tacit collusion.

Power market integration is analyzed in a two-country model with nationally regulated firms and c... more Power market integration is analyzed in a two-country model with nationally regulated firms and costly public funds. If the generation costs between the two countries are too similar, negative business stealing outweighs efficiency gains so that the subsequent integration welfare decreases in both regions. Integration is welfare enhancing when the cost difference between two regions is large enough. The benefits from export profits increase the total welfare in the exporting country, whereas the importing country benefits from lower prices. In this case, market integration also improves incentives to invest compared to autarky. The investment levels remain inefficient, however, especially for transportation facilities. Free riding reduces incentives to invest in these public-good components of the network, whereas business stealing tends to decrease the capacity to finance new investment. This paper is a product of the Partnerships, Capacity Building Unit, Development Economics Vice...

The paper analyzes the equilibrium on the credit market when a bank and a platform compete to o¤e... more The paper analyzes the equilibrium on the credit market when a bank and a platform compete to o¤er credit to borrowers. The platform does not manage deposit accounts, but acts as an intermediary between the borrower and the investor. The bank and the platform are di¤erentiated on the borrower side and on the investor side. The bank o¤ers a safe contract to the investor, whereas the platform o¤ers a risky contract, such that the investor is only reimbursed if the borrower is successful. The bank o¤ers a contract to the borrower that requires the borrower to supply a collateral, whereas the platform does not demand any guarantee.

We analyze the relationship between Microfinance Institutions (MFIs) and external funding institu... more We analyze the relationship between Microfinance Institutions (MFIs) and external funding institutions, with the aim of contributing to the debate on "mission drift" (the tendencyfor MFIs to lend money to wealthier borrower rather than to the very poor). We suggestthat funding institutions build incentives for MFIs to choose the adequate share of poorerborrowers and to exert effort to increase the quality of the funded projects. We show thatasymmetric information on both the effort level and its cost may increase the share of richerborrowers. However the unobservability of the cost of effort has an ambiguous effect. Itpushes efficient MFIs to serve a higher share of poorer borrowers, while less efficient onesdecrease their poor outreach.

SSRN Electronic Journal, 2017

We analyze the relationship between Microfinance Institutions (MFIs) and external donors, with th... more We analyze the relationship between Microfinance Institutions (MFIs) and external donors, with the aim of contributing to the debate on "mission drift" in microfinance. We assume that both the donor and the MFI are pro-poor, possibly at different extents. Borrowers can be (very) poor or wealthier (but still unbanked). Incentives have to be provided to the MFI to exert costly effort to identify the more valuable projects and to choose the right share of poorer borrowers (the optimal level of poor outreach). We first concentrate on hidden action. We show that asymmetric information can distort the share of very poor borrowers reached by loans, thus increasing mission drift. We then concentrate on hidden types, assuming that MFIs are characterized by unobservable heterogeneity on the cost of effort. In this case, asymmetric information does not necessarily increase the mission drift. The incentive compatible contracts push efficient MFIs to serve a higher share of poorer borrowers, while less efficient ones decrease their poor outreach.

SSRN Electronic Journal, 2017

Intellectual Property Rights (IPR) protect firms from imitation and are considered crucial to pro... more Intellectual Property Rights (IPR) protect firms from imitation and are considered crucial to promoting innovation and technological diffusion. This paper examines the impact of IPR on import-sourcing decisions of multinational firms. We consider a framework in which firms offshore production of an intermediate good to another country. Firms can decide either to import the intermediate good from vertically integrated producers, or from independent suppliers. In both cases, offshoring part of the production process embodies a risk of imitation. The model predicts that, under reasonable parameter restrictions, stronger IPR disproportionately encourages the imports of intermediate goods through vertical integration. Using the US Related-Party Trade database, we find empirical evidence supportive of the positive link between level of IPR and the relative share of imports from vertically integrated manufacturers.

SSRN Electronic Journal, 2019

The paper analyzes the equilibrium on the credit market when a bank and a platform compete to off... more The paper analyzes the equilibrium on the credit market when a bank and a platform compete to offer credit to borrowers. The platform does not manage deposit accounts, but acts as an intermediary between the borrower and the investor, offering a risky contract such that the investor is only reimbursed if the borrower is successful. We first characterize the optimal contracts proposed by the platform, depending on the two-sided structure of the market. Then, we study the impact of bank-platform competition on the average risk of bank loans and the relative level of interest rates. We derive the conditions on the lending and the deposit markets such that the bank accomodates platform entry.

International Journal of Industrial Organization, 2019

Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch ge... more Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may be saved and copied for your personal and scholarly purposes. You are not to copy documents for public or commercial purposes, to exhibit the documents publicly, to make them publicly available on the internet, or to distribute or otherwise use the documents in public. If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence.

International Journal of Industrial Organization, 2017

Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch ge... more Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may be saved and copied for your personal and scholarly purposes. You are not to copy documents for public or commercial purposes, to exhibit the documents publicly, to make them publicly available on the internet, or to distribute or otherwise use the documents in public. If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence.

Economic Modelling, 2017

In a supranational common market, national regulation can produce inefficiencies. National regula... more In a supranational common market, national regulation can produce inefficiencies. National regulators typically care only for domestic welfare and they tend to push national firms in the common market. When information about production costs is held privately by firms and is unknown to the regulator, competition between national and foreign firms can help to reduce the information rents captured by national producers and thus increase efficiency. This is more likely when the production costs of national and foreign firms are highly correlated, for instance because firms use similar technologies. In other cases, market share rivalry pushes national regulators to inefficiently expand the production of national firms, also increasing the information rents. When the ex-ante uncertainty of the production costs is high, the creation of a common market is more likely to increase expected welfare, as compared to separated national markets.

Industrial Policy for National Champions, 2011

This chapter focuses on the impact of market integration in regulated markets. If the trade barri... more This chapter focuses on the impact of market integration in regulated markets. If the trade barriers are cleared, competition takes place at the supranational level and regulation acts at the national level. Efficient and competent firms benefit from market integration as they take this as an opportunity to expand their business and encourage efficiency in a competitive environment. Market integration may be welfare-reducing as it affects the budget constraint of regulated firms. The author further identifies and discusses how consumers, taxpayers, and firms get affected by this market integration. The author presents a model that reflects on the possibility of cooperation between regulators; this cooperation is a means through which to get away with globally suboptimal policies in which countries wish to pay transfers to inefficient national producers. The chapter offers a welfare analysis of the impact of integration in regulated markets. I first show that under complete information, competition is welfare enhancing if and only if the variable costs of the two firms are sufficiently different. The high-cost country benefits from a price reduction and the low-cost country from export revenues. When the costs are similar, the (negative) business stealing effect prevails. Competition is not very beneficial to consumers (small price effect), and it harms the national firm, and hence tax payers, through business stealing. Indeed market integration creates winners and losers in both countries: I thus identify and discuss the impact of market integration on consumers, taxpayers and firms. In particular, in the presence of asymmetric information, supranational competition produces nontrivial effects on the rent-seeking behavior of regulated firms. Competition is in general thought to put constraints on regulated firms and to limit their capability of capturing information rents. My analysis shows that this is not always the case and that the direction of the effects depends crucially on the stochastic distribution of the shocks on production costs.

The World Bank Economic Review, 2013

The MIT Press eBooks, Jul 22, 2011

This chapter focuses on the impact of market integration in regulated markets. If the trade barri... more This chapter focuses on the impact of market integration in regulated markets. If the trade barriers are cleared, competition takes place at the supranational level and regulation acts at the national level. Efficient and competent firms benefit from market integration as they take this as an opportunity to expand their business and encourage efficiency in a competitive environment. Market integration may be welfare-reducing as it affects the budget constraint of regulated firms. The author further identifies and discusses how consumers, taxpayers, and firms get affected by this market integration. The author presents a model that reflects on the possibility of cooperation between regulators; this cooperation is a means through which to get away with globally suboptimal policies in which countries wish to pay transfers to inefficient national producers. The chapter offers a welfare analysis of the impact of integration in regulated markets. I first show that under complete information, competition is welfare enhancing if and only if the variable costs of the two firms are sufficiently different. The high-cost country benefits from a price reduction and the low-cost country from export revenues. When the costs are similar, the (negative) business stealing effect prevails. Competition is not very beneficial to consumers (small price effect), and it harms the national firm, and hence tax payers, through business stealing. Indeed market integration creates winners and losers in both countries: I thus identify and discuss the impact of market integration on consumers, taxpayers and firms. In particular, in the presence of asymmetric information, supranational competition produces nontrivial effects on the rent-seeking behavior of regulated firms. Competition is in general thought to put constraints on regulated firms and to limit their capability of capturing information rents. My analysis shows that this is not always the case and that the direction of the effects depends crucially on the stochastic distribution of the shocks on production costs.

World Development, Feb 1, 2023

The paper proposes an empirical analysis of the determinants of the adoption of Intellectual Prop... more The paper proposes an empirical analysis of the determinants of the adoption of Intellectual Property Rights (IPR) and their impact on innovation in manufacturing. The analysis is conducted with panel data covering 112 countries. First we show that IPR protection is U-shaped with respect to a country's market size and inverse-U-shaped with respect to the aggregated market size of its trade partners. Second, reinforcing IPR protection reduces on-the-frontier and inside-the-frontier innovation in developing countries, without necessarily increasing innovation at the global level.

Economic Modelling, 2018

In a supranational common market, national regulation can produce inefficiencies. National regula... more In a supranational common market, national regulation can produce inefficiencies. National regulators typically care only for domestic welfare and they tend to push national firms in the common market. When information about production costs is held privately by firms and is unknown to the regulator, competition between national and foreign firms can help to reduce the information rents captured by national producers and thus increase efficiency. This is more likely when the production costs of national and foreign firms are highly correlated, for instance because firms use similar technologies. In other cases, market share rivalry pushes national regulators to inefficiently expand the production of national firms, also increasing the information rents. When the ex-ante uncertainty of the production costs is high, the creation of a common market is more likely to increase expected welfare, as compared to separated national markets.

Journal of Industrial Economics, Jun 1, 2010

This paper considers the use of the alternating monopoly strategy (AMS) as a (tacit) collusion de... more This paper considers the use of the alternating monopoly strategy (AMS) as a (tacit) collusion device. We show that firms may choose this strategy in particular environments, when other collusive strategies are also feasible. In particular, we stress how the presence of an observable move (entry), distinct from the competitive stage (price setting), can serve as a coordination device, reducing the costs of monitoring in incomplete information environments. The paper thus shows that AMS may be preferable to classic market sharing collusion (MSE) and in some cases is the only collusive equilibrium. JEL classification: L41.

We build a theoretical model in which MNFs based in developed countries (the North) offshore prod... more We build a theoretical model in which MNFs based in developed countries (the North) offshore production of an intermediate good in a developing country (the South). MNFs can open a subsidiary in the country (vertical integration), or rely on independent contractors (outsourcing), through a licensing contract based on a Northern blueprint. The environment in the destination country is characterized by incomplete contracts and an imitation risk related to weak IPR enforcement. Our model shows that under reasonable assumptions on model parameters, a reinforcement of IPR in the South increases the relative share of imports from vertically integrated suppliers (and decrease the share of outsourcing to independent suppliers). The model predictions are tested using data on intra-firm trade of US multinationals provided by the U.S. Related-Party Trade database. JEL classification: F23, F12.

In this paper, we focus on the possibility of colluding in the time release of new goods. We cons... more In this paper, we focus on the possibility of colluding in the time release of new goods. We consider a framework in which firms face uncertain demands and have information about the presence of present or future competitors’ new products but not of their prices. We show that ATM (alternating time monopoly) may be Pareto improving with respect to classic tacit collusion and in some cases is the only equilibrium capable of sustaining tacit collusion.

Power market integration is analyzed in a two-country model with nationally regulated firms and c... more Power market integration is analyzed in a two-country model with nationally regulated firms and costly public funds. If the generation costs between the two countries are too similar, negative business stealing outweighs efficiency gains so that the subsequent integration welfare decreases in both regions. Integration is welfare enhancing when the cost difference between two regions is large enough. The benefits from export profits increase the total welfare in the exporting country, whereas the importing country benefits from lower prices. In this case, market integration also improves incentives to invest compared to autarky. The investment levels remain inefficient, however, especially for transportation facilities. Free riding reduces incentives to invest in these public-good components of the network, whereas business stealing tends to decrease the capacity to finance new investment. This paper is a product of the Partnerships, Capacity Building Unit, Development Economics Vice...

The paper analyzes the equilibrium on the credit market when a bank and a platform compete to o¤e... more The paper analyzes the equilibrium on the credit market when a bank and a platform compete to o¤er credit to borrowers. The platform does not manage deposit accounts, but acts as an intermediary between the borrower and the investor. The bank and the platform are di¤erentiated on the borrower side and on the investor side. The bank o¤ers a safe contract to the investor, whereas the platform o¤ers a risky contract, such that the investor is only reimbursed if the borrower is successful. The bank o¤ers a contract to the borrower that requires the borrower to supply a collateral, whereas the platform does not demand any guarantee.

We analyze the relationship between Microfinance Institutions (MFIs) and external funding institu... more We analyze the relationship between Microfinance Institutions (MFIs) and external funding institutions, with the aim of contributing to the debate on "mission drift" (the tendencyfor MFIs to lend money to wealthier borrower rather than to the very poor). We suggestthat funding institutions build incentives for MFIs to choose the adequate share of poorerborrowers and to exert effort to increase the quality of the funded projects. We show thatasymmetric information on both the effort level and its cost may increase the share of richerborrowers. However the unobservability of the cost of effort has an ambiguous effect. Itpushes efficient MFIs to serve a higher share of poorer borrowers, while less efficient onesdecrease their poor outreach.

SSRN Electronic Journal, 2017

We analyze the relationship between Microfinance Institutions (MFIs) and external donors, with th... more We analyze the relationship between Microfinance Institutions (MFIs) and external donors, with the aim of contributing to the debate on "mission drift" in microfinance. We assume that both the donor and the MFI are pro-poor, possibly at different extents. Borrowers can be (very) poor or wealthier (but still unbanked). Incentives have to be provided to the MFI to exert costly effort to identify the more valuable projects and to choose the right share of poorer borrowers (the optimal level of poor outreach). We first concentrate on hidden action. We show that asymmetric information can distort the share of very poor borrowers reached by loans, thus increasing mission drift. We then concentrate on hidden types, assuming that MFIs are characterized by unobservable heterogeneity on the cost of effort. In this case, asymmetric information does not necessarily increase the mission drift. The incentive compatible contracts push efficient MFIs to serve a higher share of poorer borrowers, while less efficient ones decrease their poor outreach.

SSRN Electronic Journal, 2017

Intellectual Property Rights (IPR) protect firms from imitation and are considered crucial to pro... more Intellectual Property Rights (IPR) protect firms from imitation and are considered crucial to promoting innovation and technological diffusion. This paper examines the impact of IPR on import-sourcing decisions of multinational firms. We consider a framework in which firms offshore production of an intermediate good to another country. Firms can decide either to import the intermediate good from vertically integrated producers, or from independent suppliers. In both cases, offshoring part of the production process embodies a risk of imitation. The model predicts that, under reasonable parameter restrictions, stronger IPR disproportionately encourages the imports of intermediate goods through vertical integration. Using the US Related-Party Trade database, we find empirical evidence supportive of the positive link between level of IPR and the relative share of imports from vertically integrated manufacturers.

SSRN Electronic Journal, 2019

The paper analyzes the equilibrium on the credit market when a bank and a platform compete to off... more The paper analyzes the equilibrium on the credit market when a bank and a platform compete to offer credit to borrowers. The platform does not manage deposit accounts, but acts as an intermediary between the borrower and the investor, offering a risky contract such that the investor is only reimbursed if the borrower is successful. We first characterize the optimal contracts proposed by the platform, depending on the two-sided structure of the market. Then, we study the impact of bank-platform competition on the average risk of bank loans and the relative level of interest rates. We derive the conditions on the lending and the deposit markets such that the bank accomodates platform entry.

International Journal of Industrial Organization, 2019

Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch ge... more Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may be saved and copied for your personal and scholarly purposes. You are not to copy documents for public or commercial purposes, to exhibit the documents publicly, to make them publicly available on the internet, or to distribute or otherwise use the documents in public. If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence.

International Journal of Industrial Organization, 2017

Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch ge... more Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may be saved and copied for your personal and scholarly purposes. You are not to copy documents for public or commercial purposes, to exhibit the documents publicly, to make them publicly available on the internet, or to distribute or otherwise use the documents in public. If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence.

Economic Modelling, 2017

In a supranational common market, national regulation can produce inefficiencies. National regula... more In a supranational common market, national regulation can produce inefficiencies. National regulators typically care only for domestic welfare and they tend to push national firms in the common market. When information about production costs is held privately by firms and is unknown to the regulator, competition between national and foreign firms can help to reduce the information rents captured by national producers and thus increase efficiency. This is more likely when the production costs of national and foreign firms are highly correlated, for instance because firms use similar technologies. In other cases, market share rivalry pushes national regulators to inefficiently expand the production of national firms, also increasing the information rents. When the ex-ante uncertainty of the production costs is high, the creation of a common market is more likely to increase expected welfare, as compared to separated national markets.

Industrial Policy for National Champions, 2011

This chapter focuses on the impact of market integration in regulated markets. If the trade barri... more This chapter focuses on the impact of market integration in regulated markets. If the trade barriers are cleared, competition takes place at the supranational level and regulation acts at the national level. Efficient and competent firms benefit from market integration as they take this as an opportunity to expand their business and encourage efficiency in a competitive environment. Market integration may be welfare-reducing as it affects the budget constraint of regulated firms. The author further identifies and discusses how consumers, taxpayers, and firms get affected by this market integration. The author presents a model that reflects on the possibility of cooperation between regulators; this cooperation is a means through which to get away with globally suboptimal policies in which countries wish to pay transfers to inefficient national producers. The chapter offers a welfare analysis of the impact of integration in regulated markets. I first show that under complete information, competition is welfare enhancing if and only if the variable costs of the two firms are sufficiently different. The high-cost country benefits from a price reduction and the low-cost country from export revenues. When the costs are similar, the (negative) business stealing effect prevails. Competition is not very beneficial to consumers (small price effect), and it harms the national firm, and hence tax payers, through business stealing. Indeed market integration creates winners and losers in both countries: I thus identify and discuss the impact of market integration on consumers, taxpayers and firms. In particular, in the presence of asymmetric information, supranational competition produces nontrivial effects on the rent-seeking behavior of regulated firms. Competition is in general thought to put constraints on regulated firms and to limit their capability of capturing information rents. My analysis shows that this is not always the case and that the direction of the effects depends crucially on the stochastic distribution of the shocks on production costs.

The World Bank Economic Review, 2013