Working Paper: CEPR ID: DP6413
Authors: Giacomo Calzolari; Carlo Scarpa
Abstract: 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.
Keywords: foreign competition; multinational enterprises; national champions; regulation
JEL Codes: F23; L51
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Foreign profits (F23) | Domestic regulation (L51) |
| Foreign expansion (F23) | Domestic consumer welfare (D19) |
| Foreign activities (F59) | Information asymmetry of the regulator (G18) |
| Foreign competition (F23) | Domestic prices (P22) |
| Firm's foreign activities (F23) | Domestic prices (P22) |
| Firm's decision to expand abroad (F23) | Domestic market outcomes (F61) |