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Downstream Integration by a Bottleneck Input Supplier Whose Regulated Wholesale Prices Are Above Costs

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  • Biglaiser, Gary
  • DeGraba, Patrick
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    Abstract

    We examine the consequences of allowing a bottleneck input supplier to vertically integrate downstream and compete with users of the input when the input has a regulated price above cost. If the supplier maximizes the sum of short-run profits from the downstream market and input market, then allowing the vertical integration will increase social surplus, even if it causes sellers of competing differentiated products to exit the market. If the bottleneck supplier wishes to engage in predatory pricing, increasing the regulated price of the input above cost reduces the incentive to engage in predation. These questions are motivated primarily by assertions made in the public record that allowing Bell Operating Companies into long distance can be harmful if access rates are above cost. Copyright 2001 by the RAND Corporation.

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    Bibliographic Info

    Article provided by The RAND Corporation in its journal RAND Journal of Economics.

    Volume (Year): 32 (2001)
    Issue (Month): 2 (Summer)
    Pages: 302-15

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    Handle: RePEc:rje:randje:v:32:y:2001:i:2:p:302-15

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    Cited by:
    1. Brito, Duarte & Pereira, Pedro & Vareda, João, 2010. "Can two-part tariffs promote efficient investment on next generation networks?," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 28(3), pages 323-333, May.
    2. Kenneth Fjell & Øystein Foros & Debashis Pal, 2010. "Endogenous Average Cost Based Access Pricing," Review of Industrial Organization, Springer, Springer, vol. 36(2), pages 149-162, March.
    3. Brito, Duarte & Pereira, Pedro & Vareda, João, 2012. "Incentives to invest and to give access to non-regulated new technologies," Information Economics and Policy, Elsevier, Elsevier, vol. 24(3), pages 197-211.
    4. BOUCKAERT, Jan & VERBOVEN, Frank, 2003. "Price squeezes in a regulatory environment," Working Papers, University of Antwerp, Faculty of Applied Economics 2003007, University of Antwerp, Faculty of Applied Economics.
    5. Duarte Brito & Pedro Pereira, 2007. "Product Differentiation when Competing with the Suppliers of Bottleneck Inputs," Working Papers, Portuguese Competition Authority 25, Portuguese Competition Authority.
    6. Duarte Brito & Pedro Pereira & João Vareda, 2008. "Incentives to Invest and to Give Access to Non-Regulated Next Generation Networks," Working Papers, Portuguese Competition Authority 35, Portuguese Competition Authority.
    7. Ingo Vogelsang, 2003. "Price Regulation of Access to Telecommunications Networks," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 41(3), pages 830-862, September.
    8. Gaudiny, Germain & Saavedra Valenzuela, Claudia, 2012. "Ex-ante margin squeeze tests in the telecommunications industry: What is a reasonable efficient operator? (Revised: December 20, 2012)," 23rd European Regional ITS Conference, Vienna 2012, International Telecommunications Society (ITS) 67955, International Telecommunications Society (ITS).
    9. Fernando Coloma & Juan-Pablo Montero, 2009. "Escalamiento de cargos de acceso e incentivos a la predación de un operador de telefonía local integrado verticalmente," Documentos de Trabajo, Instituto de Economia. Pontificia Universidad Católica de Chile. 361, Instituto de Economia. Pontificia Universidad Católica de Chile..
    10. Øystein Foros & Hans Kind & Lars Sørgard, 2007. "Managerial incentives and access price regulation," European Journal of Law and Economics, Springer, Springer, vol. 23(2), pages 117-133, April.
    11. Aldo González Tissinetti, 2006. "Antitrust and Regulation, Complements or Substitutes? The Case of a Vertically Integrated Firm," Working Papers, University of Chile, Department of Economics wp225, University of Chile, Department of Economics.
    12. Silvester Koten, 2013. "Legal unbundling and auctions in vertically integrated (utilities) markets," European Journal of Law and Economics, Springer, Springer, vol. 36(3), pages 543-573, December.
    13. Arya, Anil & Mittendorf, Brian & Sappington, David E.M., 2008. "Outsourcing, vertical integration, and price vs. quantity competition," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 26(1), pages 1-16, January.

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