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Strategic choice of financing systems in regulated and interconnected industries

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Author Info
BASSANINI, Anna
POUYET, JŽr™me

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Abstract

The growing importance of inter-network exchanges in infrastructure-based utilities influences regulatory choices and access pricing for downstream services using the infrastructures. We analyze this problem in a setting where the infrastructure managers of two bordering countries are in charge of pricing the access to their networks. The infrastructures are used by downstream firms to provide international services that link the two countries. Network costs can be financed either through a subsidy or solely through user charges. We first characterize the strategic interaction between infrastructure managers and show that it is affected by the regulatory modes adopted in the two countries. Then, we determine the equilibrium non-cooperative choice of a financing system. As opposed to the perfect cooperation benchmark, in which subsidizing the infrastructures is socially desirable, the commitment to strict budget-balance in both countries becomes socially preferable since this alleviates the externalities generated by non-coordination between access pricing decisions.

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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2002017.

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Date of creation: 01 Apr 2002
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Handle: RePEc:cor:louvco:2002017

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Related research
Keywords: Ramsey pricing; interconnected networks; Þnancing system;

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Find related papers by JEL classification:
L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Gagnepain, Philippe & Ivaldi, Marc, 1999. "Incentive Regulatory Policies: The Case of Public Transit Systems in France," IDEI Working Papers 84, Institut d'Économie Industrielle (IDEI), Toulouse. [Downloadable!]
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  2. Ming Chang, 1996. "Ramsey pricing in a hierarchical structure with an application to network-access pricing," Journal of Economics, Springer, vol. 64(3), pages 281-314, October. [Downloadable!] (restricted)
  3. Brander, James A. & Spencer, Barbara J., 1985. "Export subsidies and international market share rivalry," Journal of International Economics, Elsevier, vol. 18(1-2), pages 83-100, February. [Downloadable!] (restricted)
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  4. Jean-Jacques Laffont & Jean Tirole, 2001. "Competition in Telecommunications," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262621509, December.
  5. Bassanini, Anna & Pouyet, Jerome, 2005. "Strategic choice of financing systems in regulated and interconnected industries," Journal of Public Economics, Elsevier, vol. 89(2-3), pages 233-259, February. [Downloadable!] (restricted)
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  6. Hendricks, K. & Piccione, M. & Tan, G., 1995. "Entry and Exit in Hub-Spoke Networks," UBC Departmental Archives 95-20, UBC Department of Economics.
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  7. Armstrong, Mark, 2001. "The theory of access pricing and interconnection," MPRA Paper 15608, University Library of Munich, Germany. [Downloadable!]
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Bassanini, Anna & Pouyet, Jérôme, 2003. "Strategic Choice of Financing Systems in Regulated and Interconnected Industries," CEPR Discussion Papers 3888, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  2. Bruno De Borger & Fay Dunkerley & Stef Proost, 2008. "The Interaction between Tolls and Capacity Investment in Serial and Parallel Transport Networks," Review of Network Economics, Concept Economics, vol. 7(1), pages 136-158, March. [Downloadable!]
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  3. Per J. Agrell & Jerome Pouyet, 2008. "Regulatory Competition in Network Interconnection Pricing," Review of Network Economics, Concept Economics, vol. 7(1), pages 111-135, March. [Downloadable!]
  4. Lommerud, Kjell Erik & Olsen, Trond E. & Straume, Odd Rune, 2005. "Access regulation and cross-border mergers: Is international coordination beneficial?," Discussion Papers 2005/8, Department of Finance and Management Science, Norwegian School of Economics and Business Administration. [Downloadable!]
  5. Per Agrell & Jérôme Pouyet, 2005. "The régulation of transborder network services," Working Papers hal-00243022_v1, HAL. [Downloadable!]
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