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Regulating Private Infrastructure Investment: Optimal Pricing for Access to Essential Facilities

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Author Info
Gans, Joshua S

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Abstract

This paper analyzes optimal pricing for access to essential facilities in a competitive environment. The focus is on investment incentive issues arising from regulation under complete information. To that end, examining the provision of a natural monopoly infrastructure with unlimited capacity, it is shown that the fixed component of a regulated access price can be structured so as to induce a "race" between market participants to provide the infrastructure. An appropriate pricing formula can ensure that a single firm chooses to invest at the socially optimal time (taking into account producer and consumer surplus) despite the immediate access granted to rivals and the non-existence of government subsidies. Under the optimal pricing formula, firms choose their investment timing based on their desire to pre-empt their rivals. This pricing formula is efficient (a two part tariff), implementable ex post, and robust to alternative methods of asset valuation (replacement or historical cost). When firms are not identical, the access pricing formula resembles, in equilibrium, a fully distributed cost methodology. Copyright 2001 by Kluwer Academic Publishers

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Publisher Info
Article provided by Springer in its journal Journal of Regulatory Economics.

Volume (Year): 20 (2001)
Issue (Month): 2 (September)
Pages: 167-89
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Handle: RePEc:kap:regeco:v:20:y:2001:i:2:p:167-89

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  1. Bastos Vareda, João Miguel & Hoernig, Steffen, 2007. "The Race for Telecoms Infrastructure Investment with Bypass: Can Access Regulation Achieve the First-best?," CEPR Discussion Papers 6203, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  2. Duarte Brito & Pedro Pereira & João Vareda, 2008. "Incentives to Invest and to Give Access to Non-Regulated Next Generation Networks," Working Papers 08-10, NET Institute, revised Oct 2008. [Downloadable!]
    Other versions:
  3. Jackie Krafft & Evens Salies, 2008. "Why and how should innovative industries with high consumer switching costs be re-regulated?," Documents de Travail de l'OFCE 2008-13, Observatoire Francais des Conjonctures Economiques (OFCE). [Downloadable!]
    Other versions:
  4. Armstrong, Mark, 2001. "The theory of access pricing and interconnection," MPRA Paper 15608, University Library of Munich, Germany. [Downloadable!]
  5. Mats Bergman, 2005. "When Should an Incumbent be Obliged to Share its Infrastructure with an Entrant Under the General Competition Rules?," Journal of Industry, Competition and Trade, Springer, vol. 5(1), pages 5-26, January. [Downloadable!] (restricted)
  6. Pio Baake & Ulrich Kamecke, 2006. "New Networks, Competition and Regulation," Discussion Papers of DIW Berlin 568, DIW Berlin, German Institute for Economic Research. [Downloadable!]
  7. Justus Haucap, 2003. "Telephone Number Allocation: A Property Rights Approach," European Journal of Law and Economics, Springer, vol. 15(2), pages 91-109, March. [Downloadable!] (restricted)
  8. Keiichi Hori & Keizo Mizuno, 2004. "Network Investment and Competition with Access-to-Bypass," Econometric Society 2004 Australasian Meetings 138, Econometric Society. [Downloadable!]
  9. 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). [Downloadable!]
  10. Bergman, Mats, 2003. "When Should an Incumbent Be Obliged to Share its Infrastructure with an Entrant Under the General Competition Rules?," Working Paper Series 2003:25, Uppsala University, Department of Economics. [Downloadable!]
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