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REGULATION BY DUOPOLY
Author(s) -
Auriol Emmanuelle,
Laffont JeanJacques
Publication year - 1992
Publication title -
journal of economics and management strategy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.672
H-Index - 68
eISSN - 1530-9134
pISSN - 1058-6407
DOI - 10.1111/j.1430-9134.1992.00507.x
Subject(s) - duopoly , market structure , microeconomics , marginal cost , industrial organization , monopoly , competition (biology) , yardstick , economics , procurement , common value auction , business , cournot competition , ecology , geometry , mathematics , biology , management
This paper analyzes, within the framework of the new regulatory economics that emphasizes asymmetries of information, the optimal structure of an industry. The duplication of fixed costs incurred in a duopoly structure may be socially justified in a static model by three effects: the sampling effect, the yardstick competition effect, and the increasing marginal cost effect. We show that in general, asymmetric information favors duopoly when the market structure is decided before firms discovers their cost characteristics (a common situation in dual sourcing for procurement), and favors monopoly when the market structure is decided after firms discover their cost characteristics (the case of split‐award auctions).