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On The Definition Of Affordable Prices Under Universal Service Obligations

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Ramiro Losada ()

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Abstract

In this paper, we investigate the social welfare implications of the European and American definition of affordable prices when a country is divided into independent zones. We find that the European definition is always soc ial welfare superior, because it forces to keep lower prices. We also introduce to new defintions of affordable prices. The first definition advocates for a common price for the unprofitable area. We prove that this definition is social welfare superior to the current definitions. In the second definition denote as “yardstick pricing” , we define the affordable prices for the unprofitable areas as a function that does not depende on their own zone profitable area price. We show that yardstick price is more efficient for social welfare when the differences in demand among zones are not very large .

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Paper provided by Universidad Carlos III, Departamento de Economía in its series Economics Working Papers with number we044015.

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Date of creation: Jul 2004
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Handle: RePEc:cte:werepe:we044015

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References listed on IDEAS
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  1. Jean-Jacques Laffont & Jean Tirole, 2001. "Competition in Telecommunications," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262621509, December.
  2. Chone, Philippe & Flochel, Laurent & Perrot, Anne, 2000. "Universal service obligations and competition," Information Economics and Policy, Elsevier, vol. 12(3), pages 249-259, September. [Downloadable!] (restricted)
  3. Alberto Iozzi, . "Who Gains from Universal Service Obligations? A Welfare Analysis of the Rule 'One Price for Everywhere'," Discussion Papers 95/39, Department of Economics, University of York.
  4. Valletti, Tommaso M & Hoernig, Steffen & Barros, Pedro P, 2002. "Universal Service and Entry: The Role of Uniform Pricing and Coverage Constraints," Journal of Regulatory Economics, Springer, vol. 21(2), pages 169-90, March. [Downloadable!] (restricted)
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  5. Gasmi, Farid & Laffont, Jean-Jacques & Sharkey, William, 1999. "Competition, Universal Service and Telecommunications Policy in Developing Countries," IDEI Working Papers 92, Institut d'Économie Industrielle (IDEI), Toulouse.
    Other versions:
  6. Chone, Philippe & Flochel, Laurent & Perrot, Anne, 2002. "Allocating and funding universal service obligations in a competitive market," International Journal of Industrial Organization, Elsevier, vol. 20(9), pages 1247-1276, November. [Downloadable!] (restricted)
  7. Valletti, Tommaso M., 2000. "Introduction: Symposium on universal service obligation and competition," Information Economics and Policy, Elsevier, vol. 12(3), pages 205-210, September. [Downloadable!] (restricted)
  8. Andrei Shleifer, 1985. "A Theory of Yardstick Competition," RAND Journal of Economics, The RAND Corporation, vol. 16(3), pages 319-327, Autumn. [Downloadable!] (restricted)
  9. Philippe Chone & Laurent Flochel & Anne Perrot, 2000. "Allocating and Funding Universal Service Obligations in a Competitive Network Market," Econometric Society World Congress 2000 Contributed Papers 0213, Econometric Society. [Downloadable!]
  10. Anton, James J. & Vander Weide, James H. & Vettas, Nikolaos, 2002. "Entry auctions and strategic behavior under cross-market price constraints," International Journal of Industrial Organization, Elsevier, vol. 20(5), pages 611-629, May. [Downloadable!] (restricted)
  11. Rosston, G.R. & Wimmer, B.S., 2000. "The "State" of Universal Service," Papers 99-018, United Nations World Employment Programme-.
  12. Rosston, Gregory L. & Wimmer, Bradley S., 2000. "The 'state' of universal service," Information Economics and Policy, Elsevier, vol. 12(3), pages 261-283, September. [Downloadable!] (restricted)
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