Working papers, Department of Economics, WU (Wirtschaftsuniversität Wien)
Regulation of a Complementary Imputed Good in a Competitive Environment
Abstract: This article investigates the problem of a regulated
imputed good which is used in the production process of the final goods.
The relationship between the firm producing the essential input factor and
the regulating authority is described by a standard principal-agent setup.
By assuming a fixed functional relationship in the production process
between the imputed good and the final market goods, there exists some kind
of separation between regulation and competition on the final good market.
Thus, the degree of competitiveness on the final good market has no effect
on optimal contracts. Moreover, in this model vertical integration weakly
dominates vertical disintegration in welfare for subadditive cost
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