Abstract
This paper studies how investment outcomes in a vertically related industry with a regulated monopolist and downstream competition are affected by diverse regulation imposed investment regimes. For vertically seperated industries, we find that under Cournot competition downstream process innovation should always be undertaken by the downstream competitors themselves. However, under Bertrand competition investment levels as well as welfare might be higher when the regulated upstream monopolist undertakes the investment. Under vertical integration downstream investment is always closer to the first-best regardless of the mode of competition.
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