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Network regulation using an agent

Author

Listed:
  • Jolian McHardy

    (Department of Economics, The University of Sheffield)

  • Michael Reynolds
  • Stephen Trotter

Abstract

The general complexity of demand interrelationships including the co-existence of complements and substitutes make traditional methods of regulating network industries problematic. Collusive pricing is preferred to independent pricing on complementary sections of a network whilst the reverse is true where goods/services are substitutes. However, the costs of market failure in the context of complementary goods, in particular, make appropriate regulatory involvement in such industries all the more important. In this paper, we explore alternative competitive and regulatory strategies within a simple theoretical network with differentiated demands. We show that the employment of an independent profit-maximising agent may offer a partial solution to the problem of network regulation, yielding outcomes which involve all parties pursuing their own interests yet being desirable to both firms and a welfare-maximising social planner.

Suggested Citation

  • Jolian McHardy & Michael Reynolds & Stephen Trotter, 2007. "Network regulation using an agent," Working Papers 2007004, The University of Sheffield, Department of Economics, revised Feb 2007.
    • Handle: RePEc:shf:wpaper:2007004
    as

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    File URL: http://www.shef.ac.uk/content/1/c6/06/58/60/SERP2007004.pdf
    File Function: First version, 2007
    Download Restriction: no
    File URL: http://www.shef.ac.uk/content/1/c6/06/58/60/SERP2007004.pdf
    File Function: Revised version, 2007
    Download Restriction: no
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    References listed on IDEAS

    as
    1. Else, P. K. & James, T. J., 1995. "Privatisation and the quality of rail services," Transportation Research Part A: Policy and Practice, Elsevier, vol. 29(6), pages 387-400, November.
    2. McHardy, Jolian & Trotter, Stephen, 2006. "Competition and deregulation: Do air passengers get the benefits?," Transportation Research Part A: Policy and Practice, Elsevier, vol. 40(1), pages 74-93, January.
    3. Jolian Mchardy, 2006. "Complementary Monopoly And Welfare: Is Splitting Up So Bad?," Manchester School, University of Manchester, vol. 74(3), pages 334-349, June.
    4. Economides, Nicholas & Salop, Steven C, 1992. "Competition and Integration among Complements, and Network Market Structure," Journal of Industrial Economics, Wiley Blackwell, vol. 40(1), pages 105-123, March.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Networks; Regulation; Duopoly; Agent;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • R48 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Government Pricing and Policy

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