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Regulation of an Open Access Essential Facility

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  • AXEL GAUTIER
  • MANIPUSHPAK MITRA

Abstract

A vertically integrated firm owns an essential input and operates on the downstream market. There is a potential entrant in the downstream market. Both firms use the same essential input. The regulator's objectives are (i) to ensure financing of the essential input and (ii) to generate competition in the downstream market. The regulatory mechanism grants non-discriminatory access of the essential facility to the entrant provided it pays a two-part tariff to the incumbent. The optimal mechanism generates inefficient entry. The inefficient entry captures the trade-off between market efficiency and infrastructure financing resulting from incomplete information and non-discriminatory access. Copyright (c) The London School of Economics and Political Science 2007.

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Bibliographic Info

Article provided by London School of Economics and Political Science in its journal Economica.

Volume (Year): 75 (2008)
Issue (Month): 300 (November)
Pages: 662-682

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Handle: RePEc:bla:econom:v:75:y:2008:i:300:p:662-682

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References

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  1. Laffont, Jean-Jacques & Tirole, Jean, 1992. "Access Pricing and Competition," IDEI Working Papers 19, Institut d'Économie Industrielle (IDEI), Toulouse.
  2. Jean-Jacques Laffont & Jean Tirole, 2001. "Competition in Telecommunications," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262621509, December.
  3. Caillaud, Bernard, 1990. "Regulation, competition, and asymmetric information," Journal of Economic Theory, Elsevier, vol. 52(1), pages 87-110, October.
  4. Caillaud, Bernard & Tirole, Jean, 2004. "Essential facility financing and market structure," Journal of Public Economics, Elsevier, vol. 88(3-4), pages 667-694, March.
  5. Campos, Javier & Cantos, Pedro, 1999. "Regulating privatized rail transport," Policy Research Working Paper Series 2064, The World Bank.
  6. Auriol, Emmanuelle & Laffont, Jean-Jacques, 1992. "Regulation by Duopoly," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 1(3), pages 507-33, Fall.
  7. Armstrong, Mark, 2001. "The theory of access pricing and interconnection," MPRA Paper 15608, University Library of Munich, Germany.
  8. McAfee, R Preston & McMillan, John, 1987. "Auctions and Bidding," Journal of Economic Literature, American Economic Association, vol. 25(2), pages 699-738, June.
  9. Guesnerie, Roger & Laffont, Jean-Jacques, 1984. "A complete solution to a class of principal-agent problems with an application to the control of a self-managed firm," Journal of Public Economics, Elsevier, vol. 25(3), pages 329-369, December.
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Cited by:
  1. BLOCH, Francis & GAUTIER, Axel, 2006. "Access pricing and entry in the postal sector," CORE Discussion Papers 2006065, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. GAUTIER, Axel, 2005. "Network financing with two-part and single tariff," CORE Discussion Papers 2005034, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Toshihiro Matsumura & Noriaki Matsushima, 2012. "Regulated Input Price, Vertical Separation, and Leadership in Free Entry Markets," ISER Discussion Paper 0853, Institute of Social and Economic Research, Osaka University.

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