Single-till regulation, dual-till regulation, and regulatory capture: When does a regulatory authority favor single-till regulation over dual-till regulation?

Abstract

This paper analyzes single-till regulation and dual-till regulation of a monopoly infrastructure, and clarifies conditions under which different stakeholders prefer one regulation type to the other. When a regulator maximizes the utility of consumers, the profit of service providers, or the weighted sum of both, it prefers single-till regulation when there is a positive profit from the non-core good. On the contrary, when the regulator maximizes the profit of the (infrastructure) monopoly, dual-till regulation is preferred if the profit from the non-core good is positive. Under a positive profit from the non-core good, consumers and service providers prefer single-till regulation, while the monopoly prefers dual-till regulation. Consumers and service providers thus have an opposite preference to the monopoly. If a regulator implements dual-till regulation under a positive profit from the non-core good, it reveals its preference for the monopoly's profit, suggesting that the regulator may be captured by the monopoly.