Department of Economics and Business Economics

The Organization of Regulated Production: Complementarities, Correlation and Collusion

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  • Jos Jansen
  • Doh-Shin Jeon, Université Toulouse 1, France
  • Domenico Menicucci, University of Florence, Italy
We analyze the choice between vertical separation (VS) and vertical integration (VI) when two regulated firms produce complementary inputs with correlated costs and are protected by ex post break-even constraints. First, in the absence of collusion the regulator prefers VI (VS) for negative and weak positive (respectively, strong positive) correlation. Second, if the firms can collude under VS and know all costs, then VS is equivalent to VI. However, if firms collude under asymmetric information, then collusion does not affect the choice between VS and VI, since the regulator takes advantage of the transaction costs created by asymmetric information.
Original languageEnglish
JournalInternational Journal of Industrial Organization
Volume26
Issue1
Pages (from-to)327-353
Number of pages27
ISSN0167-7187
DOIs
Publication statusPublished - 2008

    Research areas

  • Regulation, Vertical separation, Vertical integration, Collusion, Asymmetric information, complementarity, correlation

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