Bottleneck co-ownership as a regulatory alternative
AbstractThis paper proposes a regulatory mechanism for vertically related industries in which the upstream âbottleneckâ segment faces significant returns to scale while other (downstream) segments may be more competitive. In the proposed mechanism, the ownership of the upstream firm is allocated to downstream firms in proportion to their shares of input purchases. This mechanism, while preserving downstream competition, partially internalizes the benefits of exploiting economies of scale resulting from an increase in downstream output. We show that this mechanism is more efficient than a disintegrated market structure in which the upstream natural monopoly bottleneck sets a price equal to average cost.
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Bibliographic InfoArticle provided by Springer in its journal Journal of Regulatory Economics.
Volume (Year): 41 (2012)
Issue (Month): 2 (April)
Contact details of provider:
Web page: http://www.springerlink.com/link.asp?id=100298
Regulation; Vertically related industries; Co-ownership; L22; L51;
Other versions of this item:
- Federico Boffa & John Panzar, 2011. "Bottleneck co-ownership as a regulatory alternative," Working Papers 2011/38, Institut d'Economia de Barcelona (IEB).
- L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
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