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Can Poorly Informed Regulators Hinder Competition?

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  • Ana Espinola-Arredondo
  • Felix Munoz-Garcia

    (School of Economic Sciences, Washington State University)

Abstract

This paper considers an entry-deterrence game in which environmental policy is set without perfectly observing the incumbent firm's costs. We investigate if regulators, who can have an informational advantage relative to the potential entrant, support entry-deterring practices. The paper demonstrates that, while entry-deterring equilibria only emerge under restrictive conditions when the regulator is perfectly informed, these equilibria arise under larger settings as he becomes uninformed. Furthermore, we show that the regulator is willing to support the incumbent?s entry-deterring practices regardless of his degree of information if entry costs are sufficiently high. However, when entry costs are lower, the regulator only sustains this type of practices if he is poorly informed.

Suggested Citation

  • Ana Espinola-Arredondo & Felix Munoz-Garcia, 2013. "Can Poorly Informed Regulators Hinder Competition?," Working Papers 2013-3, School of Economic Sciences, Washington State University.
    • Handle: RePEc:wsu:wpaper:espinola-15
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    References listed on IDEAS

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    8. Ana Espínola-Arredondo & Félix Muñoz-Garcia & Jude Bayham, 2014. "The Entry-Deterring Effects of Inflexible Regulation," Canadian Journal of Economics, Canadian Economics Association, vol. 47(1), pages 298-324, February.
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    Cited by:

    1. Ana Espínola-Arredondo & Félix Muñoz-García, 2016. "Profit-enhancing environmental policy: uninformed regulation in an entry-deterrence model," Journal of Regulatory Economics, Springer, vol. 50(2), pages 146-163, October.
    2. Choi, Pak-Sing & Espinola-Arredondo, Ana & Munoz, Felix, 2020. "Mergers as an environmental ally: Socially excessive and insufficient merger approvals," Working Papers 2020-1, School of Economic Sciences, Washington State University.
    3. Muñoz-Garcia Félix & Espinola-Arredondo Ana, 2015. "The Signaling Role of Subsidies," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 15(1), pages 157-178, January.

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    More about this item

    Keywords

    Entry deterrence; Signaling; Emission fees; Informational advantage;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics

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