Access profit-sharing regulation with information acquisition and transmission

This paper analyses how information acquisition and transmission on the upstream cost affect the optimal access profit-sharing plan and the regulator’s choice of an information transmission regime in network industries characterized by a regulated upstream monopoly with cost uncertainty and an unregulated downstream duopoly. When the regulator obliges the upstream monopolist to transmit information to a downstream rival, the adoption of an access profit-sharing plan may boost his/her incentives to acquire information. It will be shown that the optimal access profit-sharing plan under information transmission depends on the variance and shape of cost distribution. Moreover, an information transmission regime proves to be welfare preferable to a regime with no information transmission only if it induces information acquisition and if the regulator is significantly concerned about firms’ profits.

► An upstream monopolist in a network industry can acquire information on his/her cost.
► I consider access profit-sharing regulation and mandatory information transmission.
► Information transmission affects the optimal access profit-sharing plan.
► Transmission is welfare desirable only if it induces information acquisition.
► Welfare effects also depend on the regulators’ redistributive concerns.