Monopolization of a Regulated Industry Using Tradable Permits

• Autores: Miguel Buñuel González
• Localización: XII Encuentro de Economía Pública. Evaluación de las Políticas Públicas: Palma de Mallorca. Los días 3 y 4 de febrero de 2005, 2005, pág. 22
• Idioma: inglés
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• Resumen

  • Tradable permits or licenses may be used as a barrier to entry in order to gain market power.

    In particular, a single entrant may be the only candidate to buy all the permits and monopolize the regulated industry under many circumstances. Therefore, we can bring into the permit market the idea of �takeover� that stems from Grossman and Hart�s (1980) seminal work.

    Both in symmetric, pure- and mixed-strategy equilibria, the entrant�s expected profit, and hence the probability of entry, decreases as the number of incumbents increases. Thus, the less competition in the industry before regulation, the more likely monopolization.