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On the Problem of Network Monopoly

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  • Jolian McHardy

    ()
    (Department of Economics, The University of Sheffield)

  • Michael Reynolds
  • Stephen Trotter

Abstract

We introduce a new regulatory concept: the independent profit-maximising agent, as a model for regulating a network monopoly. The agent sets prices on cross-network goods taking either a complete, or arbitrarily small, share of the associated profit. We examine welfare and profits with and without each agent type under both network monopoly and network duopoly. We show that splitting up the network monopoly (creating network duopoly) may be inferior for both firm(s) and society compared with a network monopoly "regulated" by an agent and that society always prefers any of the four agent regimes over network monopoly and network duopoly.

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File URL: http://shef.ac.uk/content/1/c6/09/47/61/SERP2009003.pdf
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Bibliographic Info

Paper provided by The University of Sheffield, Department of Economics in its series Working Papers with number 2009003.

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Length: 25 pages
Date of creation: Mar 2009
Date of revision: Mar 2009
Handle: RePEc:shf:wpaper:2009003

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Keywords: Network; Monopoly; Agent;

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  1. Jan K. Brueckner & Stef Proost, 2009. "Carve-Outs under Airline Antitrust Immunity," CESifo Working Paper Series 2848, CESifo Group Munich.
  2. Jean-Charles Rochet & Jean Tirole, 2003. "Platform Competition in Two-Sided Markets," Journal of the European Economic Association, MIT Press, vol. 1(4), pages 990-1029, 06.
  3. Richard J. Gilbert & Michael H. Riordan, 1995. "Regulating Complementary Products: A Comparative Institutional Analysis," RAND Journal of Economics, The RAND Corporation, vol. 26(2), pages 243-256, Summer.
  4. Nicholas Economides & Charles Himmelberg, 1995. "Critical Mass and Network Size with Application to the US Fax Market," Working Papers 95-11, New York University, Leonard N. Stern School of Business, Department of Economics.
  5. Cave, Martin & Williamson, Peter, 1996. "Entry, Competition, and Regulation in UK Telecommunications," Oxford Review of Economic Policy, Oxford University Press, vol. 12(4), pages 100-121, Winter.
  6. Peitz, Martin, 2008. "Bundling may blockade entry," International Journal of Industrial Organization, Elsevier, vol. 26(1), pages 41-58, January.
  7. Jolian Mchardy, 2006. "Complementary Monopoly And Welfare: Is Splitting Up So Bad?," Manchester School, University of Manchester, vol. 74(3), pages 334-349, 06.
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