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Vertical Integration and Costly Demand Information in Regulated Network Industries

Vertical Integration and Costly Demand Information in Regulated Network Industries We study how vertical integration affects the acquisition and transmission of demand information in regulated network industries. Demand information helps to set the access price, incentivize infrastructure investment, and foster competition in the unregulated downstream market. We show that when demand information is costly and private, the optimal access prices are independent of demand levels. Vertical integration then secures greater welfare in new markets where little demand information is available or where infrastructure cost is low, or when investing is highly risky. In the remaining cases, vertical separation is preferable. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Industrial Organization Springer Journals

Vertical Integration and Costly Demand Information in Regulated Network Industries

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References (24)

Publisher
Springer Journals
Copyright
Copyright © 2012 by Springer Science+Business Media, LLC.
Subject
Economics; Industrial Organization; Microeconomics
ISSN
0889-938X
eISSN
1573-7160
DOI
10.1007/s11151-012-9340-1
Publisher site
See Article on Publisher Site

Abstract

We study how vertical integration affects the acquisition and transmission of demand information in regulated network industries. Demand information helps to set the access price, incentivize infrastructure investment, and foster competition in the unregulated downstream market. We show that when demand information is costly and private, the optimal access prices are independent of demand levels. Vertical integration then secures greater welfare in new markets where little demand information is available or where infrastructure cost is low, or when investing is highly risky. In the remaining cases, vertical separation is preferable.

Journal

Review of Industrial OrganizationSpringer Journals

Published: Feb 16, 2012

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