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Pricing Regulation Under Bypass Competition

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  • Nicolas Curien
  • Bruno Jullien
  • Patrick Rey

Abstract

We analyze optimal pricing policies in local telecommunications subject to bypass for the access of long-distance carriers. We first consider the case of a regulated monopoly that operates the local network and has access to an additional technology (bypass) more efficient for large customers. We then study how competition in bypass affects the optimal nonlinear pricing policy and the resulting allocation. When transfers are allowed between the regulator and the network operator, bypass competition benefits consumers at the expense of the taxpayer, otherwise it benefits large consumers but hurts small ones.

Suggested Citation

  • Nicolas Curien & Bruno Jullien & Patrick Rey, 1998. "Pricing Regulation Under Bypass Competition," RAND Journal of Economics, The RAND Corporation, vol. 29(2), pages 259-279, Summer.
    • Handle: RePEc:rje:randje:v:29:y:1998:i:summer:p:259-279
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    Cited by:

    1. Martimort, David & Stole, Lars A., 2022. "Participation constraints in discontinuous adverse selection models," Theoretical Economics, Econometric Society, vol. 17(3), July.
    2. Lewis, Tracy R. & Sappington, David E. M., 1999. "Access pricing with unregulated downstream competition," Information Economics and Policy, Elsevier, vol. 11(1), pages 73-100, March.
    3. Joan Calzada, 2006. "Worksharing and Access Discounts in the Postal Sector with Asymmetric Information," Journal of Regulatory Economics, Springer, vol. 29(1), pages 69-102, January.
    4. Richard Martin, 2006. "A network bypass model of cook strait ferries," New Zealand Economic Papers, Taylor & Francis Journals, vol. 40(1), pages 7-22.
    5. Inderst, Roman, 2004. "Contractual distortions in a market with frictions," Journal of Economic Theory, Elsevier, vol. 116(1), pages 155-176, May.
    6. 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.
    7. Vislie,J., 2001. "Environmental regulation, asymmetric information and foreign ownership," Memorandum 07/2001, Oslo University, Department of Economics.
    8. Vislie,J., 2000. "Environmental regulation under asymmetric information with type-dependent outside option," Memorandum 18/2000, Oslo University, Department of Economics.
    9. Huneke, William, 2006. "A Game Theory Approach to Railroad-Shipper Negotiations," Journal of the Transportation Research Forum, Transportation Research Forum, vol. 45(1).
    10. Armstrong, Mark & Sappington, David E.M., 2007. "Recent Developments in the Theory of Regulation," Handbook of Industrial Organization, in: Mark Armstrong & Robert Porter (ed.), Handbook of Industrial Organization, edition 1, volume 3, chapter 27, pages 1557-1700, Elsevier.

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