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Deregulating Network Industries: Dealing with Price-quality Tradeoffs

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  • Stefan Buehler

    ()

  • Dennis Gärtner

    ()

  • Daniel Halbheer

    ()

Abstract

This paper examines the effects of introducing competition into monopolized network industries on prices and infrastructure quality. Analyzing a model with reduced-form demand, we first show that deregulating an integrated monopoly cannot simultaneously decrease the retail price and increase infrastructure quality. Second, we derive conditions under which reducing both retail price and infrastructure quality relative to the integrated monopoly outcome increases welfare. Third, we argue that restructuring and setting very low access charges may yield welfare losses, as infrastructure investment is undermined. We provide an extensive analysis of the linear demand model and discuss policy implications. Copyright Springer Science+Business Media, LLC 2006

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File URL: http://hdl.handle.net/10.1007/s11149-006-0011-8
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Bibliographic Info

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

Volume (Year): 30 (2006)
Issue (Month): 1 (07)
Pages: 99-115

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Handle: RePEc:kap:regeco:v:30:y:2006:i:1:p:99-115

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Web page: http://www.springerlink.com/link.asp?id=100298

Related research

Keywords: Infrastructure quality; Deregulation; Investment incentives; Access charges; Regulation; D43; L434;

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References

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  1. Newbery, David M., 1997. "Privatisation and liberalisation of network utilities," European Economic Review, Elsevier, vol. 41(3-5), pages 357-383, April.
  2. Spence, A Michael, 1977. "Nonprice Competition," American Economic Review, American Economic Association, vol. 67(1), pages 255-59, February.
  3. Stefan Buehler & Armin Schmutzler & Men-Andri Benz, 2002. "Infrastructure Quality in Deregulated Industries: Is there an Underinvestment Problem?," SOI - Working Papers 0209, Socioeconomic Institute - University of Zurich.
  4. Economides, Nicholas, 1998. "The incentive for non-price discrimination by an input monopolist," International Journal of Industrial Organization, Elsevier, vol. 16(3), pages 271-284, May.
  5. Reiffen, David, 1998. "A Regulated Firm's Incentive to Discriminate: A Reevaluation and Extension of Weisman's Result," Journal of Regulatory Economics, Springer, vol. 14(1), pages 79-86, July.
  6. David Mandy & David E. M. Sappington, 2004. "Incentives for Sabotage in Vertically Related Industries," Working Papers 0404, Department of Economics, University of Missouri, revised 16 Dec 2004.
  7. A. Michael Spence, 1975. "Monopoly, Quality, and Regulation," Bell Journal of Economics, The RAND Corporation, vol. 6(2), pages 417-429, Autumn.
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Cited by:
  1. Alessandro Avenali & Giorgio Matteucci & Pierfrancesco Reverberi, 2010. "How does vertical industry structure affect investment in infrastructure quality?," DIS Technical Reports 2010-08, Department of Computer, Control and Management Engineering, Universita' degli Studi di Roma "La Sapienza".
  2. Growitsch, Christian & Stronzik, Marcus, 2011. "Ownership Unbundling of Gas Transmission Networks - Empirical Evidence," EWI Working Papers 2011-7, Energiewirtschaftliches Institut an der Universitaet zu Koeln.
  3. Stefan Bühler & Simon Wey, 2010. "Demand-Enhancing Investment in Mixed Duopoly," University of St. Gallen Department of Economics working paper series 2010 2010-16, Department of Economics, University of St. Gallen.
  4. Gugler, Klaus & Rammerstorfer, Margarethe & Schmitt, Stephan, 2013. "Ownership unbundling and investment in electricity markets — A cross country study," Energy Economics, Elsevier, vol. 40(C), pages 702-713.
  5. Andreas Haller & Christian Jaag & Urs Trinkner, 2011. "Termination Charges in the International Parcel Market: Competition and Regulation," Working Papers 0028, Swiss Economics.
  6. Andreas Haller & Christian Jaag & Urs Trinkner, 2012. "Termination Charges in the International Parcel Market," Working Papers 0033, Swiss Economics.
  7. Mark Armstrong & David E.M. Sappington, 2006. "Regulation, Competition and Liberalization," Journal of Economic Literature, American Economic Association, vol. 44(2), pages 325-366, June.

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