Open AccessVertical Integration, Regulation, & The Shifting Of Economic Profits
Author(s) -
Joseph P. Fuhr
Publication year - 2011
Publication title -
journal of applied business research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.149
H-Index - 22
eISSN - 2157-8834
pISSN - 0892-7626
DOI - 10.19030/jabr.v3i2.6537
Subject(s) - monopoly , competitor analysis , constraint (computer aided design) , competition (biology) , vertical integration , microeconomics , upstream (networking) , economics , industrial organization , product (mathematics) , empirical research , telecommunications , computer science , mechanical engineering , ecology , philosophy , geometry , mathematics , management , epistemology , engineering , biology
A model which shows how a vertically integrated, multiproduct regulated monopolist can shift its monopoly profits to its upstream nonregulated affiliate is developed. The model is expanded to include a self-imposed constraint on the percentage mark-up of the transfer price which makes the regulatory constraint binding. The telecommunications industry is examined to determine what empirical evidence exists to support the shifting of profits hypothesis. Competitors are foreclosed from the market based on the desire to shift profits not on an economic efficiency criterion. How a multiproduct regulated monopolist reacts to competition in one of its product lines is analyzed.