IDEAS home Printed from https://ideas.repec.org/p/chc/wpaper/0064.html
   My bibliography  Save this paper

Funding Universal Services: Cross-subsidization and Net cost balancing

Author

Listed:
  • Urs Trinkner
  • Christian Jaag
  • Andreas Haller

Abstract

Incumbent operators providing universal services are increasingly active in competitive markets. Prices of universal services (US) products are often regulated. The traditional solution is to regulate the US products by separating accounts between US and non-US products and imposing a product-specific rate-of-return regulation on US products with fully allocated cost based on activities (ABC) as a point of reference. In this paper we analyze the competitive and welfare effects of the Swiss net cost balancing mechanism (NCB). NCB is applied since 2013 and allows the regulated USP to reallocate its net cost of the universal service obligation through internal transfer payments. The analysis in Section 2 leads to the conclusion that NCB is as least as strict as anti-cross-subsidization rules based on Faulhaber. If general competition law applies to non-universal services, NCB can be considered stricter. NCB can therefore be seen as an implementation of the Faulhaber rule. We further find that NCB increases welfare as compared to ABC costing clearly. The welfare increases are induced by a more market oriented, but cross-subsidy free USP pricing.

Suggested Citation

  • Urs Trinkner & Christian Jaag & Andreas Haller, 2019. "Funding Universal Services: Cross-subsidization and Net cost balancing," Working Papers 0064, Swiss Economics.
    • Handle: RePEc:chc:wpaper:0064
    as

    Download full text from publisher

    File URL: http://www.swiss-economics.ch/RePEc/files/0064HallerJaagTrinkner.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Jaag Christian, 2013. "Price Regulation and the Financing of Universal Services in Network Industries," Review of Law & Economics, De Gruyter, vol. 9(1), pages 125-150, September.
    2. Christian Jaag & Martin Maegli, 2015. "Market Regulations and USO in the Revised Swiss Postal Act: Provisions and Authorities," Topics in Regulatory Economics and Policy, in: Michael A. Crew & Timothy J. Brennan (ed.), Postal and Delivery Innovation in the Digital Economy, edition 127, pages 301-311, Springer.
    3. Parsons, Steve G, 1998. "Cross-Subsidization in Telecommunications," Journal of Regulatory Economics, Springer, vol. 13(2), pages 157-182, March.
    4. Faulhaber, Gerald R, 1975. "Cross-Subsidization: Pricing in Public Enterprises," American Economic Review, American Economic Association, vol. 65(5), pages 966-977, December.
    5. Haller Andreas & Christian Jaag & Urs Trinkner, 2014. "USO cost allocation rules and welfare," Working Papers 0049, Swiss Economics.
    6. Christian Jaag & Urs Trinkner, 2011. "The interaction between universal service costing and financing in the postal sector: a calibrated approach," Journal of Regulatory Economics, Springer, vol. 39(1), pages 89-110, February.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Haller Andreas & Christian Jaag & Urs Trinkner, 2014. "USO cost allocation rules and welfare," Working Papers 0049, Swiss Economics.
    2. David Lowing & Léa Munich & Kevin Techer, 2024. "Allocating the common costs of a public service operator: an axiomatic approach," Working Papers 2024-05, CRESE.
    3. Christian Jaag & Martin Maegli, 2015. "Market Regulations and USO in the Revised Swiss Postal Act: Provisions and Authorities," Topics in Regulatory Economics and Policy, in: Michael A. Crew & Timothy J. Brennan (ed.), Postal and Delivery Innovation in the Digital Economy, edition 127, pages 301-311, Springer.
    4. Steve Parsons, 2002. "Laffont and Tirole's Competition in Telecommunications : A View From the US," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 9(3), pages 419-436.
    5. Kitchens, Carl T. & Jaworski, Taylor, 2017. "Ownership and the price of residential electricity: Evidence from the United States, 1935–1940," Explorations in Economic History, Elsevier, vol. 64(C), pages 53-61.
    6. Palovic, Martin, 2022. "Administrative congestion management meets electricity network regulation: Aligning incentives between the renewable generators and network operator," Utilities Policy, Elsevier, vol. 79(C).
    7. David Encaoua & Michel Moreaux, 1987. "L'analyse théorique des problèmes de tarification et d'allocation des coûts dans les télécommunications," Revue Économique, Programme National Persée, vol. 38(2), pages 375-414.
    8. Frank A. Wolak, 2018. "The Evidence from California on the Economic Impact of Inefficient Distribution Network Pricing," NBER Working Papers 25087, National Bureau of Economic Research, Inc.
    9. Christian Jaag & Urs Trinkner & Topias Uotila, 2014. "Regulation and the burden of the net cost resulting from the Universal Service Obligation," Chapters, in: Michael A. Crew & Timothy J. J. Brennan (ed.), The Role of the Postal and Delivery Sector in a Digital Age, chapter 15, pages 204-213, Edward Elgar Publishing.
    10. Jaag Christian, 2011. "What is an Unfair Burden? Compensating the Net Cost of Universal Service Provision," Review of Network Economics, De Gruyter, vol. 10(3), pages 1-32, September.
    11. Brennan, Timothy J., 2000. "The Economics of Competition Policy: Recent Developments and Cautionary Notes in Antitrust and Regulation," Discussion Papers 10716, Resources for the Future.
    12. Russell Pittman, 2010. "Against the stand-alone-cost test in U.S. freight rail regulation," Journal of Regulatory Economics, Springer, vol. 38(3), pages 313-326, December.
    13. Vincent Iehlé, 2004. "Stable pricing in monopoly and equilibrium-core of cost games," Cahiers de la Maison des Sciences Economiques b05023, Université Panthéon-Sorbonne (Paris 1).
    14. Pierre Dehez, 2013. "Cooperative provision of indivisible public goods," Theory and Decision, Springer, vol. 74(1), pages 13-29, January.
    15. Jamison, Mark A., 1996. "General conditions for subsidy-free prices," Journal of Economics and Business, Elsevier, vol. 48(4), pages 371-385, October.
    16. Watts, Alison, 1999. "Cooperative production: a comparison of lower and upper bounds," Journal of Mathematical Economics, Elsevier, vol. 32(3), pages 317-331, November.
    17. Vincent Iehlé, 2009. "Sustainability In A Multiproduct And Multiple Agent Contestable Market," Bulletin of Economic Research, Wiley Blackwell, vol. 61(2), pages 151-164, April.
    18. Lewis Kornhauser, 1983. "Control of conflicts of interest in class-action suits," Public Choice, Springer, vol. 41(1), pages 145-175, January.
    19. Gäfgen, Gérard, 1990. "Die Finanzkraft der Großunternehmung als wettbewerbsrelevantes Merkmal der Marktstruktur," Discussion Papers, Series I 248, University of Konstanz, Department of Economics.
    20. Pedrini, Giulio & Cappiello, Giuseppe, 2022. "The impact of training on labour productivity in the European utilities sector: An empirical analysis," Utilities Policy, Elsevier, vol. 74(C).

    More about this item

    Keywords

    USO; cost allocation; net cost rebalancing; ramsey pricing; ABC;
    All these keywords.

    JEL classification:

    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:chc:wpaper:0064. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Urs Trinkner (email available below). General contact details of provider: https://edirc.repec.org/data/swecoch.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.