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Endogenous Average Cost Based Access Pricing

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Author Info
Kenneth Fjell ()
Øystein Foros ()
Debashis Pal ()
Abstract

We analyze an endogenous average cost based access pricing rule,where both the regulated firm and its rivals realize the interdependence among their output and the regulated access price. In contrast, the existing literature on access pricing has always assumed the access price to be exogenously fixed ex-ante. We show that endogenous access pricing fully neutralizes the dominance enjoyed by the incumbent firm, and that the consumer surplus is equal to or larger than under exogenous access pricing. If the entrants are more efficient than the incumbent, then the welfare under endogenous access pricing is higher than under exogenous access pricing.

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File URL: http://www.artsci.uc.edu/collegedepts/economics/research/docs/Wppdf/2006-01.pdf
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Paper provided by University of Cincinnati, Department of Economics in its series University of Cincinnati, Economics Working Papers Series with number 2006-01.

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Length: 21 pages
Date of creation: 2006
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Handle: RePEc:cin:ucecwp:2006-01

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  1. Laffont, Jean-Jacques & Tirole, Jean, 1996. "Creating Competition through Interconnection: Theory and Practice," Journal of Regulatory Economics, Springer, vol. 10(3), pages 227-56, November.
  2. Jean-Jacques Laffont & Jean Tirole, 2001. "Competition in Telecommunications," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262621509, December.
  3. Degraba, Patrick, 2003. "A Bottleneck Input Supplier's Opportunity Cost of Competing Downstream," Journal of Regulatory Economics, Springer, vol. 23(3), pages 287-97, May. [Downloadable!] (restricted)
  4. Jean-Jacques Laffont & Jean Tirole, 1994. "Access Pricing and Competition," Working papers 94-31, Massachusetts Institute of Technology (MIT), Department of Economics.
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  5. Armstrong, Mark, 2001. "The theory of access pricing and interconnection," MPRA Paper 15608, University Library of Munich, Germany. [Downloadable!]
  6. Damania, D, 1996. "The Scope for Collusion and Competition in a Regulated Vertically Integrated Industry," Bulletin of Economic Research, Blackwell Publishing, vol. 48(3), pages 253-64, July.
  7. Peitz, Martin, 2005. "Asymmetric access price regulation in telecommunications markets," European Economic Review, Elsevier, vol. 49(2), pages 341-358, February. [Downloadable!] (restricted)
  8. Economides, Nicholas & Lopomo, Giuseppe & Woroch, Glenn, 1996. "Regulatory Pricing Rules to Neutralize Network Dominance," Industrial and Corporate Change, Oxford University Press, vol. 5(4), pages 1013-28.
  9. Biglaiser, Gary & DeGraba, Patrick, 2001. "Downstream Integration by a Bottleneck Input Supplier Whose Regulated Wholesale Prices Are Above Costs," RAND Journal of Economics, The RAND Corporation, vol. 32(2), pages 302-15, Summer.
  10. Armstrong, Mark & Doyle, Chris & Vickers, John, 1996. "The Access Pricing Problem: A Synthesis," Journal of Industrial Economics, Blackwell Publishing, vol. 44(2), pages 131-50, June. [Downloadable!] (restricted)
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