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Incomplete Regulation, Asymmetric Information and Collusion-Proofness

Author

Listed:
  • Marco Meireles

    (Faculdade de Economia, Universidade do Porto)

  • Paula Sarmento

    (CEF.UP, Faculdade de Economia, Universidade do Porto)

Abstract

In an incomplete regulation framework the Regulator cannot replicate all the possible outcomes by himself since he has no influence on some firms present in the market. When facing asymmetric information regarding the regulated firm’s costs, it may be better for the Regulator to allow the other competitors to extract a truthful report from her through side-payments in a collusion and therefore the “Collusion-Proofness Principle” may not hold. In fact, by introducing an exogenous number of unregulated competitors, Social Welfare differences seem to favour a Collusion-Allowing equilibrium. However, such result will strongly depend on the relative importance given by the Regulator to the Consumer Surplus.

Suggested Citation

  • Marco Meireles & Paula Sarmento, 2009. "Incomplete Regulation, Asymmetric Information and Collusion-Proofness," FEP Working Papers 320, Universidade do Porto, Faculdade de Economia do Porto.
    • Handle: RePEc:por:fepwps:320
    as

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    File URL: http://www.fep.up.pt/investigacao/workingpapers/09.04.03_wp320.pdf
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    References listed on IDEAS

    as
    1. Tangeras, Thomas P., 2002. "Collusion-proof yardstick competition," Journal of Public Economics, Elsevier, vol. 83(2), pages 231-254, February.
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    3. Myerson, Roger B, 1979. "Incentive Compatibility and the Bargaining Problem," Econometrica, Econometric Society, vol. 47(1), pages 61-73, January.
    4. Caillaud, Bernard, 1990. "Regulation, competition, and asymmetric information," Journal of Economic Theory, Elsevier, vol. 52(1), pages 87-110, October.
    5. Cécile Aubert & Jérôme Pouyet, 2006. "Incomplete regulation, market competition and collusion," Review of Economic Design, Springer;Society for Economic Design, vol. 10(2), pages 113-142, August.
    6. Jean-Jacques Laffont & David Martimort, 1997. "Collusion under Asymmetric Information," Econometrica, Econometric Society, vol. 65(4), pages 875-912, July.
    7. Jean-Jacques Laffont & David Martimort, 2000. "Mechanism Design with Collusion and Correlation," Econometrica, Econometric Society, vol. 68(2), pages 309-342, March.
    8. Green, Jerry & Laffont, Jean-Jacques, 1977. "On the revelation of preferences for public goods," Journal of Public Economics, Elsevier, vol. 8(1), pages 79-93, August.
    9. repec:dau:papers:123456789/13654 is not listed on IDEAS
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    More about this item

    Keywords

    Incomplete Regulation; Asymmetric Information; Collusion; Market Competition;
    All these keywords.

    JEL classification:

    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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