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Regulation of an open access essential facility

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Author Info
GAUTIER, Axel
MITRA, Manipushpak

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Abstract

In this paper we consider the problem of regulating an open access essential facility. A vertically integrated firm owns an essential input and operates on the downstream market under the roof of a regulatory mechanism. There is a potential entrant in the downstream market. Both competitors use the same essential input to provide the final services to the consumers. The regulator designs a mechanism that guarantees financing of the essential input and adequate competition in the downstream market. We consider a regulatory mechanism that grants non-discriminatory access of the essential facility to a competitor. We show that this mechanism is welfare improving but it generates inefficient entry. That is a more efficient competitor may stay out of the market or a less efficient competitor may enter the market.

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Publisher Info
Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2003084.

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Date of creation: 01 Nov 2003
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Handle: RePEc:cor:louvco:2003084

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Related research
Keywords: regulation; railways; network; entry; competition; access charge; asymmetric information;

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Find related papers by JEL classification:
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information
H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
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. McAfee, R Preston & McMillan, John, 1987. "Auctions and Bidding," Journal of Economic Literature, American Economic Association, vol. 25(2), pages 699-738, June. [Downloadable!] (restricted)
  2. Caillaud, Bernard, 1990. "Regulation, competition, and asymmetric information," Journal of Economic Theory, Elsevier, vol. 52(1), pages 87-110, October. [Downloadable!] (restricted)
  3. Guesnerie, Roger & Laffont, Jean-Jacques, 1984. "A complete solution to a class of principal-agent problems with an application to the control of a self-managed firm," Journal of Public Economics, Elsevier, vol. 25(3), pages 329-369, December. [Downloadable!] (restricted)
  4. Jean-Jacques Laffont & Jean Tirole, 2001. "Competition in Telecommunications," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262621509.
  5. Auriol, Emmanuelle & Laffont, Jean-Jacques, 1992. "Regulation by Duopoly," Journal of Economics & Management Strategy, Blackwell Publishing, vol. 1(3), pages 507-33, Fall.
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  6. 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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  7. Armstrong, Mark, 2001. "The theory of access pricing and interconnection," MPRA Paper 15608, University Library of Munich, Germany. [Downloadable!]
  8. Caillaud, Bernard & Tirole, Jean, 2001. "Essential Facility Financing and Market Structure," CEPR Discussion Papers 2802, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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Cited by:
(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. BLOCH, Francis & GAUTIER, Axel, 2006. "Access pricing and entry in the postal sector," CORE Discussion Papers 2006065, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE). [Downloadable!]
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  2. GAUTIER, Axel, 2005. "Network financing with two-part and single tariff," CORE Discussion Papers 2005034, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE). [Downloadable!]
  3. Poudou, J.C. & Roland, M. & Thomas, L., 2007. "Universal Service Obligations and Competition with Asymmetric Information," Cahiers du LASER (LASER Working Papers) 2007.22, LASER (Laboratoire de Science Economique de Richter), Faculty of Economics, University of Montpellier 1. [Downloadable!]
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