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Efficient access pricing and endogenous market structure

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  • DAM, Kaniska
  • GAUTIER, Axel

    (Université catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE))

  • MITRA, Manipushpak

Abstract

We analyse a (differentiated good) industry where an incumbent firm owns a network good (essential input) and faces potential competition in the (downstream) retail market. Unlike the traditional approach, we consider a scenario where the decision to compete or not in the downstream segment is endogenous, and this decision depends on the particular mechanism designed by the utilitarian regulator. We assume that the technology of the potential entrant is private information. We derive the efficient (Ramsey) prices and access charge taking the impact of a non-discriminatory mechanism on entry decision into account. We assert that the optimal pricing formula must include a Ramsey term that is inversely related to the "modified" superelasticity of the retail good under consideration. We further show, under unknown cost, that there might be "excess" or "too little" entry compared to the socially optimal level.

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Bibliographic Info

Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2007004.

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Date of creation: 01 Jan 2007
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Handle: RePEc:cor:louvco:2007004

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Related research

Keywords: non-discriminatory access; endogenous competition; modified superelasticity;

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Cited by:
  1. Bloch Francis & Gautier Axel, 2008. "Access Pricing and Entry in the Postal Sector," Review of Network Economics, De Gruyter, vol. 7(2), pages 1-24, June.

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