Behaviour and ownership in the theory of competition and regulation
Ownership matters. It affects residual rights under incomplete contracts and, therefore, incentives. The first chapter of this thesis analyzes in how far ownership can be substituted by other economic factors. Contrary to an assumption found in the literature market foreclosure can be achieved without vertical integration in the following scenarios: repeated games, reputation games, and also in a finitely repeated game when there are switching costs. The main chapter is concerned with implications of ownership in regulated industries where a monopolistic supplier of an essential input is required by a regulator to charge cost based prices. Our analysis focuses on the impact of ownership on the monopolist's incentives to exploit informational asymmetries about production costs. We conduct a comparative study of vertical integration, vertical separation, and joint ownership. Effects on welfare, investments incentives, and entry are analyzed for each ownership structure. Joint ownership performs best. Accounting separation is shown to be generally ineffective as regulatory instrument. We use an alternative model which allows to take into account network duplication. Starting from a free market analysis of equilibrium pricing and entry decisions we explore the relation between ownership and the degree of regulation required in order to ensure efficient outcomes. Two part tariffs, network duplication, price discrimination and a long-term commitment to fixed input prices induce reductions of final prices. The final part of this thesis investigates results in the theory of competitive market equilibrium. Many of these results rely on restrictive assumptions on consumer behaviour. We analyze in how far traditional equilibrium theory is robust against a relaxation of underlying assumptions. We do not assume agents to be rational in the sense that their choices arise from maximisation. Randomly fluctuating demand is allowed for and consequences for predictions made by traditional competitive equilibrium theory are re-examined.