We examine the regulatory design of a market for products with interdependent demands, where regulated firms provide (imperfect) substitutes and can engage in lobbying activities. Under centralized regulation, a single regulator is established, whose mandate is to maximize aggregate welfare. Under decentralized regulation, each firm is assigned to a regulator charged with maximizing the welfare generated by that firm. With asymmetric cost information, centralized regulation results in a negative externality between firms when engaging in lobbying. Decentralized regulation removes this externality and reduces lobbying. Since this benefit comes at the cost of miscoordination between regulators, a trade-off results which favors decentralized regulation when goods are substitutes enough

The regulation of markets with interdependent demands

SCARPA, Carlo
2014-01-01

Abstract

We examine the regulatory design of a market for products with interdependent demands, where regulated firms provide (imperfect) substitutes and can engage in lobbying activities. Under centralized regulation, a single regulator is established, whose mandate is to maximize aggregate welfare. Under decentralized regulation, each firm is assigned to a regulator charged with maximizing the welfare generated by that firm. With asymmetric cost information, centralized regulation results in a negative externality between firms when engaging in lobbying. Decentralized regulation removes this externality and reduces lobbying. Since this benefit comes at the cost of miscoordination between regulators, a trade-off results which favors decentralized regulation when goods are substitutes enough
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11379/466382
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