Collusion in regulated pluralistic markets (original) (raw)
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Price regulation of pluralistic markets subject to provider collusion
2009
We analyse incentives for collusive behaviour when heterogeneous providers are faced with regulated prices under two forms of yardstick competition, namely discriminatory and uniform schemes. Providers are heterogeneous in the degree to which their interests correspond to those of the regulator, with close correspondence labelled altruism. Deviation of interests may arise as a result of de-nationalisation or when private providers enter predominantly public markets. We assess how provider strategies and incentives to collude relate to provider characteristics and across different market structures. We differentiate between "pure" markets with either only self-interested providers or with only altruistic providers and "pluralistic" markets with a mix of provider type. We find that the incentive for collusion under a discriminatory scheme increases in the degree to which markets are self-interested whereas under a uniform scheme the likelihood increases in the degr...
Cost-based access regulation and collusion in a differentiated duopoly
Economics Letters, 2010
This paper revisits the conventional doctrine that "it is easier to collude among equals", applied in the context of vertically related markets. In a differentiated duopoly model, we study how cost-based access price regulation may hinder the sustainability of tacit collusion. (E. Baranes).
Collusion in mixed oligopolies and the coordinated effects of privatization
Journal of Economics, 2017
We study the sustainability of collusion in mixed oligopolies where private and public firms only differ in their objective: private firms maximize profits, while public firms maximize total surplus. If marginal costs are increasing, public firms do not supply the entire market, leaving room for private firms to produce and possibly cooperate by restricting output. The presence of public firms makes collusion among private firms harder to sustain, and maybe even unprofitable. As the number of private firms increases, collusion may become easier or harder to sustain. Privatization makes collusion easier to sustain, and is socially detrimental whenever firms are able to collude after privatization (which is always the case if they are sufficiently patient). Coordinated effects thus reverse the traditional result according to which privatization is socially desirable if there are many firms in the industry.
Industry structure and collusion with uniform yardstick competition: Theory and experiments
International Journal of Industrial Organization, 2017
For an industry that is subject to uniform yardstick regulation, we study cartel stability and the impact of cartels on the reg- ulated price. In a theoretical model, an increase in the number of symmetric firms may facilitate collusion. Our laboratory ex- periment suggests that this effect is even stronger than what theory predicts. Theory predicts that firm-size heterogeneity hinders collusion, but leads to higher regulated prices if firms do not collude. In a laboratory experiment we find that the first effect is stronger, implying that in a more heterogeneous industry regulated prices are lower.
Coopetition in a mixed oligopoly market
2007
In this study, we aim to investigate the impact of privatization on the degree of cooperation and competition in a mixed oligopoly market. We consider a duopoly market that comprises one semipublic firm and one private firm. Each firm is assumed to determine the level of two types of effort: the cooperative effort made to enlarge the total market size and the competitive effort made to increase market share. In a contest framework, our results show that the competitive effort level of the semipublic firm is smaller than that of the private firm. The more the semipublic firm is concerned for social welfare, the less it competes. On the basis of average costs, we then analyze the case in which only the semipublic firm undertakes cooperative effort. In this case, the private firm behaves as a free rider. Furthermore, we find that the semipublic firm expends more cooperative effort than does the private firm.
How Market Fragmentation Can Facilitate Collusion
Journal of the European Economic Association, 2012
Economists have recommended the fragmentation of capacities before regulated markets are liberalized because static oligopoly models imply that outcomes approximate perfect competition with a fragmented enough market structure. This intuition fails under collusion. When individual firms are capacity constrained relative to total demand, the fragmentation of capacity facilitates collusion and increases the highest sustainable collusive price. Collusive outcomes remain feasible even for arbitrarily fragmented capacity. These results can explain the finding in Sweeting (2007, Economic Journal, 117, 654-685), that dramatic fragmentation of generation capacity in the English electricity industry did not reduce price cost margins.(JEL: J1, J11.) 1. seemingly contradict this statement. They derive a result that under Cournot competition with decreasing marginal costs an increase in the number of firms leads to higher prices. The reason is that each remaining firm will exploit economies of scale less. However, the result is driven by the fact that the demand side is not replicated.
Journal of Economics <html_ent glyph="@amp;" ascii="&"/> Management Strategy, 1992
This pnper analyzes, within the frarnezuork of the new regulutory economics that emphasizes asymmetries of information, the optimal structure of an industry. The duplication of fixed costs incurred in a duopoly structure may be socially justified in a static model by three effects: the sampling ejfecf, the yardstick competition eflect, and the increasing inurginal cost effect. We show that in general, asyinnietric information favovs duopoly when the rriarkef sfrucfure is decided before firms discozw tlieir cost characteristics (a coininoil situatioiz in dual sourcing for procuremenf), and favors rnonopoly zuhen fhe market structure is decided after firms discover their cost characteristics (the case of splifaward auctions). 1. [NTRODUCTION The organization of sectors, once claimed to be natural monopolies, in the form of duopolistic structures is becoming frequent: MCI and ATT in long-distance telecommunications in the United States; British Telecom and Mercury, until recently, for fixed-linked public telecommunications; Telecom Securitor and Racal-Vodaphone for cellular networks in England; France Telecom and SFR for mobile phone in France. A trade-off appears to exist between the economies of scale that would arise from a monopoly structure and various costs of such a structure. As the director general of Telecommunications in England puts it: "If efficiency of operation were surely guaranteed, the existence of economies of scale would mean that it would be cheaper to provide a given increase of service by expanding an existing network rather than establishing a new one;. .. However, in the world as we find it, some competition between networks is likely to be desirable because monopoly suppliers do not normally operate at the greatest level of efficiency. " This research was supported in part by the MIT Telecommunications Business Economic Research Program and by the Commissariat Gknkral du Plan. We thank J. Hausman for his hospitality and J. Tirole and two referees of this journal for their comments.
The Interplay of Competition and Cooperation Among Service Providers (Part II)
IEEE Transactions on Network Science and Engineering, 2020
This paper investigates the incentives of mobile network operators (MNOs) for acquiring additional spectrum to offer mobile virtual network operators (MVNOs) and thereby inviting competition for a common pool of end users (EUs). We consider interactions between two service providers, an MNO and an MVNO, when the EUs 1) must choose one of them 2) have the option to defect to an outside option should the SP duo offer unsatisfactory access fees or qualities of service. We formulate a multi-stage hybrid of cooperative bargaining and non-cooperative games in which the two SPs jointly determine their spectrum acquisitions, allocations and mutual money flows through the bargaining game, and subsequently individually determine the access fees for the EUs through the non-cooperative game. We identify when the overall equilibrium solutions exist, when it is unique and characterize the equilibrium solutions when they exist. The characterizations are easy to compute, and are in closed form or involve optimizations in only one decision variable. The hybrid framework allows us to determine whether and by how much the different entities benefit due to the cooperation in spectrum acquisition decision.
Bargaining and Collusion in a Regulatory Model
Recent Advances in the Analysis of Competition Policy and Regulation, 2012
We consider the regulation of a monopolistic market when the principal delegates to a regulatory agency two tasks: the supervision of the …rm's unknown costs and the arrangement of a pricing mechanism. As usual, the agency may have an incentive to hide information from the principal to share the informative rent with the …rm. The novelty of this paper is that both the regulatory mechanism and the side contracting between the agency and the …rm are modelled as a bargaining process. This negotiation between the regulator and the monopoly induces a radical change in the extrapro…t from private information, which is now equal to the standard informational rent weighted by the agency's bargaining power. This in turn a¤ects the collusive stage, in particular the …rm has the greatest incentive to collude when facing an agency with the same bargaining power. Then, we focus on the optimal organizational responses to the possibility of collusion. In our setting, where incompleteness of contracts prevents the design of a screening mechanism between the agency's types and thus Tirole's equivalence principle does not apply, we prove that the stronger the agency in the negotiation process, the greater the incentives for the principal to tolerate collusion in equilibrium.
Should pricing policies be regulated when firms may tacitly collude?
Market Structure and Competition Policy
Active antitrust policy may result in perverse effects detrimental to consumer and social welfare because such active policy affects market structure through its impact on the medium-and long-run decisions of firms. This paper investigates the effects of deregulation of firms' pricing policies in a dynamic setting that allows for tacit collusion. We show that, provided the consumer reservation price imposes no effective constraints on firms, price deregulation will lead to discriminatory prices that are almost always and almost everywhere lower than mill prices. By contrast, if the consumer reservation price is binding, the welfare properties of the two pricing policies will be reversed with consumers losing and firms gaining from discriminatory pricing. The required degree of price flexibility for this to happen is lower in more concentrated market structures. This implies that if market concentration is already high, deregulation of pricing policies is less likely to benefit consumers unless the regulatory authorities are willing to impose accompanying restrictions intended to reduce price flexibility.