IDEAS home Printed from https://ideas.repec.org/p/cpr/ceprdp/6238.html
   My bibliography  Save this paper

Regulating a Multi-Utility Firm

Author

Listed:
  • Scarpa, Carlo
  • Calzolari, Giacomo

Abstract

We study the regulation of a utility firm which is active in a competitive unregulated sector as well. If the firm jointly operates its activities in the two markets, it enjoys economies of scope, whose size is the firm?s private information and is unknown to the regulator and the rival firms. We jointly characterize the unregulated market outcome (with price and quantity competition) and also optimal regulation. Accounting for the several effects of regulation on the unregulated market, we show the existence of an informational externality, in that regulation provides useful information to the rival firms. Although joint operation of multi-utility?s activities generates scope economies, it also brings about private information to the multi-utility, so that regulation is less efficient and also the unregulated market may be negatively affected. Nevertheless, we show that letting the multi-utility integrate productions is (socially) desirable, unless joint production is instead characterized by dis-economies of scope.

Suggested Citation

  • Scarpa, Carlo & Calzolari, Giacomo, 2007. "Regulating a Multi-Utility Firm," CEPR Discussion Papers 6238, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:6238
    as

    Download full text from publisher

    File URL: https://cepr.org/publications/DP6238
    Download Restriction: CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Lewis, Tracy R & Sappington, David E M, 1989. "An Informational Effect When Regulated Firms Enter Unregulated Markets," Journal of Regulatory Economics, Springer, vol. 1(1), pages 35-45, March.
    2. Laffont, Jean-Jacques & Tirole, Jean, 1986. "Using Cost Observation to Regulate Firms," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 614-641, June.
    3. Calzolari, Giacomo & Pavan, Alessandro, 2006. "On the optimality of privacy in sequential contracting," Journal of Economic Theory, Elsevier, vol. 130(1), pages 168-204, September.
    4. Ronald R. Braeutigam & John C. Panzar, 1989. "Diversification Incentives under "Price-Based" and "Cost-Based" Regulation," RAND Journal of Economics, The RAND Corporation, vol. 20(3), pages 373-391, Autumn.
    5. Berry, S Keith, 2000. "Excess Returns in Electric Utility Mergers during Transition to Competition," Journal of Regulatory Economics, Springer, vol. 18(2), pages 175-188, September.
    6. Elisabetta Iossa, 1999. "Informative Externalities and Pricing in Regulated Multiproduct Industries," Journal of Industrial Economics, Wiley Blackwell, vol. 47(2), pages 195-219, June.
    7. Sakai, Yasuhiro, 1985. "The value of information in a simple duopoly model," Journal of Economic Theory, Elsevier, vol. 36(1), pages 36-54, June.
    8. Xavier Vives, 2001. "Oligopoly Pricing: Old Ideas and New Tools," MIT Press Books, The MIT Press, edition 1, volume 1, number 026272040x, December.
    9. Leggio, Karyl B & Lien, Donald, 2000. "Mergers in the Electric Utility Industry in a Deregulatory Environment," Journal of Regulatory Economics, Springer, vol. 17(1), pages 69-85, January.
    10. Brennan, Timothy J & Palmer, Karen, 1994. "Comparing the Costs and Benefits of Diversification by Regulated Firms," Journal of Regulatory Economics, Springer, vol. 6(2), pages 115-136, May.
    11. Giacomo Calzolari & Carlo Scarpa, 2009. "Footloose Monopolies: Regulating a “National Champion”," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 18(4), pages 1179-1214, December.
    12. Calzolari, Giacomo, 2001. "The Theory and Practice of Regulation with Multinational Enterprises," Journal of Regulatory Economics, Springer, vol. 20(2), pages 191-211, September.
    13. Brennan, Timothy J, 1990. "Cross-Subsidization and Cost Misallocation by Regulated Monopolists," Journal of Regulatory Economics, Springer, vol. 2(1), pages 37-51, March.
    14. de Fraja, Giovanni & Delbono, Flavio, 1990. "Game Theoretic Models of Mixed Oligopoly," Journal of Economic Surveys, Wiley Blackwell, vol. 4(1), pages 1-17.
    15. Dirk Sommer, 2001. "Multi-Utilities : Trends - Blurring Industry Boundaries," World Bank Publications - Reports 11401, The World Bank Group.
    16. Sappington, David E. M., 2003. "Regulating horizontal diversification," International Journal of Industrial Organization, Elsevier, vol. 21(3), pages 291-315, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Carlo Scarpa & Giacomo Calzolari, 2009. "On Regulation and Competition: Pros and Cons of a Diversified Monopolist," Working Papers 2009.55, Fondazione Eni Enrico Mattei.
    2. Giacomo Calzolari & Carlo Scarpa, 2016. "Conglomerates And Regulation," Economic Inquiry, Western Economic Association International, vol. 54(3), pages 1648-1669, July.
    3. Armstrong, Mark & Sappington, David E.M., 2007. "Recent Developments in the Theory of Regulation," Handbook of Industrial Organization, in: Mark Armstrong & Robert Porter (ed.), Handbook of Industrial Organization, edition 1, volume 3, chapter 27, pages 1557-1700, Elsevier.
    4. Raffaele Fiocco, 2012. "Competition and regulation with product differentiation," Journal of Regulatory Economics, Springer, vol. 42(3), pages 287-307, December.
    5. Giacomo Calzolari & Carlo Scarpa, 2009. "Footloose Monopolies: Regulating a “National Champion”," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 18(4), pages 1179-1214, December.
    6. Fernando T. Camacho & Flavio M. Menenzes, 2007. "The Contamination Problem in Utility Regulation," Discussion Papers Series 352, School of Economics, University of Queensland, Australia.
    7. Ajay Bhaskarabhatla & Priyatam Anurag & Chirantan Chatterjee & Enrico Pennings, 2021. "How Does Regulation Impact Strategic Repositioning by Firms Across Submarkets? Evidence from the Indian Pharmaceutical Industry," Strategy Science, INFORMS, vol. 6(3), pages 209-227, September.
    8. Raffaele Fiocco & Dongyu Guo, 2015. "Mergers between regulated firms with unknown efficiency gains," Review of Economic Design, Springer;Society for Economic Design, vol. 19(4), pages 299-326, December.
    9. Fiocco, Raffaele, 2011. "Competition and regulation in a differentiated good market," SFB 649 Discussion Papers 2011-084, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
    10. Bernd Theilen, 2007. "Delegation and Information Sharing in Cournot Duopoly," Journal of Economics, Springer, vol. 92(1), pages 21-50, September.
    11. Nogata, Daisuke & Uchida, Konari & Goto, Naohisa, 2011. "Is corporate governance important for regulated firms' shareholders?: Evidence from Japanese mergers and acquisitions," Journal of Economics and Business, Elsevier, vol. 63(1), pages 46-68, January.
    12. John W. Mayo & David E. M. Sappington, 2016. "Regulation in a ‘Deregulated’ Industry: Railroads in the Post-Staggers Era," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 49(2), pages 203-227, September.
    13. Teti, Emanuele & Tului, Stefano, 2020. "Do mergers and acquisitions create shareholder value in the infrastructure and utility sectors? Analysis of market perceptions," Utilities Policy, Elsevier, vol. 64(C).
    14. Monastyrenko, Evgenii, 2017. "Eco-efficiency outcomes of mergers and acquisitions in the European electricity industry," Energy Policy, Elsevier, vol. 107(C), pages 258-277.
    15. Tooraj Jamasb and Manuel Llorca, 2019. "Energy Systems Integration: Economics of a New Paradigm," Economics of Energy & Environmental Policy, International Association for Energy Economics, vol. 0(Number 2).
    16. Einy, Ezra & Haimanko, Ori & Moreno, Diego & Shitovitz, Benyamin, 2010. "On the existence of Bayesian Cournot equilibrium," Games and Economic Behavior, Elsevier, vol. 68(1), pages 77-94, January.
    17. Yonghong An & Daiqiang Zhang, 2018. "Simple menus of cost‐based contracts with monotone optimal effort," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 20(5), pages 742-756, October.
    18. Bilgehan Karabay, 2017. "Optimal Regulation of Multinationals under Collusion," The World Economy, Wiley Blackwell, vol. 40(8), pages 1687-1706, August.
    19. Fiocco Raffaele, 2013. "The Optimal Institutional Design of Vertically Related Markets with Unknown Upstream Costs," Review of Network Economics, De Gruyter, vol. 12(2), pages 183-210, June.
    20. Roy Chowdhury, Prabal, 2009. "Mixed Duopoly with Price Competition," MPRA Paper 9220, University Library of Munich, Germany.

    More about this item

    Keywords

    Regulation; Competition; Asymmetric information; Multi-utility firms; Scope economies; Informational externality;
    All these keywords.

    JEL classification:

    • L43 - Industrial Organization - - Antitrust Issues and Policies - - - Legal Monopolies and Regulation or Deregulation
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:6238. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://www.cepr.org .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.