Jean-Christophe Poudou (University of Montpellier 1) Michel Roland (Université Laval) Lionel Thomas (Université de Franche-Comté)
Abstract
A regulator imposes a universal service obligation (USO) on a vertically integrated firm that owns an essential network. The regulator has imperfect information about the network's fixed cost. Network access is provided to licensed competitors. The USO consists in a constraint on market coverage and is compensated through a mix of public funds and transfers from entrants. We first use a basic adverse selection model to show that, because of informational rents, a sufficiently high shadow cost of public funds can lead to a lower coverage with the USO than without it. We then show that this result tends to be robust in various realistic extensions of the basic model.
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Find related papers by JEL classification: D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information K23 - Law and Economics - - Regulation and Business Law - - - Regulated Industries and Administrative Law L43 - Industrial Organization - - Antitrust Issues and Policies - - - Legal Monopolies and Regulation or Deregulation L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation