We study in this paper whether the price charged to a competitor for the use of an essential input produced in conditions of natural monopoly should reflect only considerations of relative efficiency between the various potential suppliers. In a model that captures the technological conditions operating in industries such as telephony, gas, rail, where access to a distribution network is essential to the ability to compete, we show that this is not the case. Instead, the access price should be set `pro-competitively': it may be socially optimal to award production to a firm less efficient than the owner of the network.
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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number
1122.
Find related papers by JEL classification: L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
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