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Formal and Informal Interactions in a Duopoly Model

Author

Listed:
  • Kahina Cherfi-Feroukhi

    (CREAD (Applied Eonomy Research Center for Development))

  • Said Souam

    (University Paris Nanterre, EconomiX, CREST and CREAD)

Abstract

This article theoretically analyzes the interactions between formal and informal firms in a vertically differentiated duopoly in which a regulatory authority intervenes to control the compliance of the firms to the law. In our simple framework, it turns out that it is never optimal to deter completely the informal firm from entering the market. This is mainly due to a production expansion effect and to an increased price competition, which increase the consumers' surplus. Moreover, it appears that a complete 'laissez-faire' policy is never optimal.

Suggested Citation

  • Kahina Cherfi-Feroukhi & Said Souam, 2019. "Formal and Informal Interactions in a Duopoly Model," Economics Bulletin, AccessEcon, vol. 39(2), pages 1095-1102.
    • Handle: RePEc:ebl:ecbull:eb-19-00324
    as

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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Informality; Vertically Differentiated Duopoly; Collective Welfare.;
    All these keywords.

    JEL classification:

    • L5 - Industrial Organization - - Regulation and Industrial Policy

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