DP6413 Footloose Monopolies: Regulating a "National Champion"

Author(s): Giacomo Calzolari, Carlo Scarpa
Publication Date: August 2007
Keyword(s): Foreign Competition, Multinational Enterprises, National Champions, Regulation
JEL(s): F23, L51
Programme Areas: Industrial Organization
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=6413

We analyze the design of optimal regulation of a domestic monopolist that also competes in an unregulated foreign market. We show how foreign activities by the regulated firm affect domestic regulation, consumers’ surplus and firm’s profits. Although expansion in unregulated foreign markets amplifies the regulatory distortions that are caused by the regulator’s limited information, we also show that allowing the firm to compete abroad does not necessarily harm domestic consumers and we analyze if and when the firm’s decision to expand abroad does in fact coincide with consumers’ interests in the regulated market.