Some Theorems Concerning Multifirm Alternatives to the Single Regulated Multiservice Firm

The assumption that all services are weak gross substitutes was used earlier in order to show, assuming any one of a wide variety of nonnegative profit multifirm alternatives to a single regulated firm providing all services, that under certain reasonable assumptions the regulated firm is always more socially desirable in the sense that there is a vector of prices which satisfies the regulatory constraint and corresponds for each service to both a lower price and a larger quantity of service consumed. The weak-gross-substitutes assumption restricts attention to cases which, while important and of interest, are nevertheless special. In some cases the assumption is clearly not justified. Roughly speaking, here it is shown that the type of result proved earlier holds without the assumption that all services are weak gross substitutes, and that, more-over, a single regulated firm which provides all services is always more socially desirable also in the sense that it can provide each service at a higher level of quality. It is assumed that the single regulated firm possesses economies of scale in a certain special sense.