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Price Regulation and the Financing of Universal Services in Network Industries

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  • Jaag Christian

    ()
    (Swiss Economics and University of St. Gallen, Switzerland)

Abstract

This article explores the complementary roles of price regulation and universal service regulation in network industries. It analyzes compensation for the universal service provider (USP) by public finances and a fund to which operators contribute. As long as the USP enjoys market power, price regulation may serve as a means to finance universal services. This implies allowing for price increases to compensate for the net cost of the universal service obligation. It releases competing operators or the general government budget from contributing to its financing but results in distorted pricing and reduced overall welfare due to inefficient entry. The analysis shows that current practices of costing and financing universal services may result in unintended market distortions. The article quantifies these effects and demonstrates how such distortions can be avoided.

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Bibliographic Info

Article provided by De Gruyter in its journal Review of Law & Economics.

Volume (Year): 9 (2013)
Issue (Month): 1 (September)
Pages: 125-150

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Handle: RePEc:bpj:rlecon:v:9:y:2013:i:1:p:125-150:n:2

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  1. Valletti, Tommaso M & Hoernig, Steffen & Barros, Pedro P, 2002. "Universal Service and Entry: The Role of Uniform Pricing and Coverage Constraints," Journal of Regulatory Economics, Springer, vol. 21(2), pages 169-90, March.
  2. Christian Jaag, 2007. "Liberalization of the Swiss Letter Market and the Viability of Universal Service Obligations," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 143(III), pages 261-282, September.
  3. Gautier Axel & Paolini Dimitri, 2011. "Universal Service Financing in Competitive Postal Markets: One Size Does Not Fit All," Review of Network Economics, De Gruyter, vol. 10(3), pages 1-30, September.
  4. Billette de Villemeur, Etienne, et al, 2003. "Optimal Pricing and Price-Cap Regulation in the Postal Sector," Journal of Regulatory Economics, Springer, vol. 24(1), pages 49-62, July.
  5. Laffont, Jean-Jacques & Tirole, Jean, 1990. "The regulation of multiproduct firms : Part II: Applications to competitive environments and policy analysis," Journal of Public Economics, Elsevier, vol. 43(1), pages 37-66, October.
  6. Armstrong Mark, 2008. "Access Pricing, Bypass and Universal Service in Post," Review of Network Economics, De Gruyter, vol. 7(2), pages 1-16, June.
  7. Christian Jaag & Urs Trinkner, 2011. "The interaction between universal service costing and financing in the postal sector: a calibrated approach," Journal of Regulatory Economics, Springer, vol. 39(1), pages 89-110, February.
  8. Christian Jaag & Helmut Dietl, 2011. "Postal and Regulatory Reform in Intermodal Competition," Working Papers 0031, Swiss Economics.
  9. De Villemeur Etienne Billette & Cremer Helmuth & Boldron Francois & Roy Bernard, 2008. "Worksharing: A Calibrated Model," Review of Network Economics, De Gruyter, vol. 7(2), pages 1-22, June.
  10. Panzar, John C., 2000. "A methodology for measuring the costs of universal service obligations," Information Economics and Policy, Elsevier, vol. 12(3), pages 211-220, September.
  11. Beat Friedli & Christian Jaag & Daniel Kraehenbuehl & Ole Bach Nielsen & Søren-Michael Pihl & Urs Trinkner, 2006. "Consumer preferences and last mile pricing in the postal sector," Working Papers 0004, Swiss Economics, revised Jul 2006.
  12. Christian Jaag, 2010. "Entry Deterrence and the Calculation of the Net Cost of Universal Service Obligations," Working Papers 0020, Swiss Economics.
  13. Jaag Christian, 2011. "What is an Unfair Burden? Compensating the Net Cost of Universal Service Provision," Review of Network Economics, De Gruyter, vol. 10(3), pages 1-32, September.
  14. Tardiff Timothy J. & Taylor William E., 2003. "Aligning Price Regulation with Telecommunications Competition," Review of Network Economics, De Gruyter, vol. 2(4), pages 1-17, December.
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