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The Effects of Vertical Separation and Access Price Regulation on Investment Incentives

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  • Paula Sarmento

    ()
    (CEF.UP and Faculty of Economics of University of Porto)

Abstract

We study the impact of vertical separation between an upstream firm and its subsidiary, which competes in the retail market with an independent firm, with the incentive to invest in network upgrade. This question is discussed under two alternative regimes concerning the price of the vital input sold by the upstream firm: cost orientation regulation and absence of access price regulation. We show that the investment incentive decreases with vertical separation under both regimes. However, it is not always true that the investment incentive is higher without regulation.

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File URL: http://www.fep.up.pt/investigacao/workingpapers/11.04.04_wp410.pdf
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Bibliographic Info

Paper provided by Universidade do Porto, Faculdade de Economia do Porto in its series FEP Working Papers with number 410.

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Length: 18 pages
Date of creation: Apr 2011
Date of revision:
Handle: RePEc:por:fepwps:410

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Keywords: access price regulation; vertical integration; investment incentives;

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  1. Beard, T Randolph & Kaserman, David L & Mayo, John W, 2001. "Regulation, Vertical Integration and Sabotage," Journal of Industrial Economics, Wiley Blackwell, vol. 49(3), pages 319-33, September.
  2. Øystein Foros & Hans Kind & Lars Sørgard, 2007. "Managerial incentives and access price regulation," European Journal of Law and Economics, Springer, vol. 23(2), pages 117-133, April.
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