Bottleneck co-ownership as a regulatory alternative
AbstractThis paper proposes a regulatory mechanism for vertically related industries in which the upstream “bottleneck” segment faces significant returns to scale while other (downstream) segments may be more competitive. In the proposed mechanism, the ownership of the upstream firm is allocated to downstream firms in proportion to their shares of input purchases. This mechanism, while preserving downstream competition, partially internalizes the benefits of exploiting economies of scale resulting from an increase in downstream output. We show that this mechanism is more efficient than a disintegrated market structure in which the upstream natural monopoly bottleneck sets a price equal to average cost.
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Bibliographic InfoPaper provided by Institut d'Economia de Barcelona (IEB) in its series Working Papers with number 2011/38.
Length: 25 pages
Date of creation: 2011
Date of revision:
Regulation; vertically related industries; co-ownership;
Other versions of this item:
- Federico Boffa & John Panzar, 2012. "Bottleneck co-ownership as a regulatory alternative," Journal of Regulatory Economics, Springer, vol. 41(2), pages 201-215, April.
- L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-12-13 (All new papers)
- NEP-COM-2011-12-13 (Industrial Competition)
- NEP-REG-2011-12-13 (Regulation)
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