Regulation of duopoly: Managed competition vs regulated monopolies

Asher Wolinsky*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

42 Scopus citations

Abstract

This paper discusses the regulation of oligopolistic differentiated-product industries. The regulator can control prices and impose quantity restrictions, but cannot control the quality choices of the firms. We inquire about the optimal choice of regulatory regime - whether and under what conditions managed competition or segmentation of the market between regulated monopolies achieves better results. In the spatial duopoly model analyzed here, unhindered competition generally results in an inefficient allocation. When the regulator knows the technologies, optimal managed competition results in distortions of the quality choice, but an optimal regulated-monopolies regime achieves the first best outcome. When the regulator is uncertain about the technologies, neither of these methods yields the first-best outcome. The regulated-monopolies regime still tends to produce better quality choices, but managed competition tends to be more effective at extracting rents from the firms. The overall comparison depends on some finer details of the environment.

Original languageEnglish (US)
Pages (from-to)821-847
Number of pages27
JournalJournal of Economics and Management Strategy
Volume6
Issue number4
DOIs
StatePublished - 1997

ASJC Scopus subject areas

  • Business, Management and Accounting(all)
  • Economics and Econometrics
  • Strategy and Management
  • Management of Technology and Innovation

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