We analyze the choice between vertical separation (VS) and vertical integration (VI) when two regulated firms produce complementary inputs with correlated costs and are protected by ex post break-even constraints. First, in the absence of collusion the regulator prefers VI (VS) for negative and weak positive (respectively, strong positive) correlation. Second, if the firms can collude under VS and know all costs, then VS is equivalent to VI. However, if firms collude under asymmetric information, then collusion does not affect the choice between VS and VI, since the regulator takes advantage of the transaction costs created by asymmetric information.
The Organization of Regulated Production: Complementarities, Correlation and Collusion / Jos Jansen; Doh-Shin Jeon; Domenico Menicucci. - In: INTERNATIONAL JOURNAL OF INDUSTRIAL ORGANIZATION. - ISSN 0167-7187. - STAMPA. - 26:(2008), pp. 327-353. [10.1016/j.ijindorg.2007.01.003]
The Organization of Regulated Production: Complementarities, Correlation and Collusion
MENICUCCI, DOMENICO
2008
Abstract
We analyze the choice between vertical separation (VS) and vertical integration (VI) when two regulated firms produce complementary inputs with correlated costs and are protected by ex post break-even constraints. First, in the absence of collusion the regulator prefers VI (VS) for negative and weak positive (respectively, strong positive) correlation. Second, if the firms can collude under VS and know all costs, then VS is equivalent to VI. However, if firms collude under asymmetric information, then collusion does not affect the choice between VS and VI, since the regulator takes advantage of the transaction costs created by asymmetric information.File | Dimensione | Formato | |
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