Regulatory risk, vertical integration, and upstream investment

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Date: Tuesday 23 March 2021
Time: 11:00 – 12:00 Paris time

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In this webinar, Dr Dongyu Guo will present on her research entitled ‘Regulatory risk, vertical integration, and upstream investment’.
This webinar will link theory with practice, and provide an in-depth look into how the research was conducted, stakeholders involved, and the results of the investigation.

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About the research
‘The uncertainty about future regulation – known as regulatory risk – has been systematically documented in regulated industries. In the popular debate, regulatory risk is perceived as welfare detrimental because it deters investment activities. 

Dr Guo’s research investigates the role of regulatory risk in a vertically related market, where an upstream regulated firm decides whether to vertically integrate and provides non-contractible investment for the supply of an essential input to downstream competitors.  

Contrary to the common view, the research finds that, when the regulator sets the regulatory policy after the vertical industry structure has been established, some degree of regulatory risk is ex ante socially beneficial. 

Regulatory risk makes vertical integration profitable and stimulates high upstream investment at a lower social cost. This occurs for moderate costs of high investment and firms’ small risk aversion. The analysis is presented in a fairly general setting without imposing any particular assumptions on either functional forms or the mode of downstream competition. 

Establishing a unified framework that incorporates regulatory risk, vertical integration and upstream investment, the research sheds new light on some empirically documented determinants of vertical integration. It provides theoretical corroboration for the identification of regulatory risk as a source of institutional uncertainty that facilitates vertical integration. The results are also consistent with the empirical findings that indicate the positive effect of uncertainty about firms’ cash flows upon vertical integration and illustrate the role of risk management in the firms’ incentives to vertically integrate.

The analysis provides further support for the well-established empirical evidence about the relevance of upstream investment to vertical integration.’

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Meet the speaker    

Did you graduate from an AMBA-accredited programme at Audencia?

This webinar is accessible to students or alumni of an AMBA-accredited programme at Audencia, i.e., Executive MBA, EuroMBA, Full-Time MBA or Master in Management (Grande Ecole Programme), but registration is required. Registering as an alum of an AMBA-accredited programme takes only a few minutes.
This event is free for AMBA members to attend but registration is required using the link above.