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Quality Provision in Deregulated Industries: The Railtrack Problem

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Author Info

  • Men-Andri Benz

    ()
    (Institute for Strategy and Business Economics, University of Zurich)

  • Stefan Buehler

    ()
    (Socioeconomic Institute, University of Zurich)

  • Armin Schmutzler

    ()
    (Socioeconomic Institute, University of Zurich)

Abstract

This paper studies a network provider's incentives to invest in infrastructure quality. In a simple but general framework, we investigate how various institutional settings affect investment incentives. We show that under reasonable assumptions on demand, investment incentives are smaller under vertical separation than under vertical integration. We consider two strategies for improving investment incentives under vertical separation. First, the introduction of competition for the market can sometimes improve incentives. Second, with non-linear access prices investment incentives under separation become identical to those under integration.

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File URL: http://www.soi.uzh.ch/research/wp/1997-2002/wp0002.pdf
File Function: First version, 2000
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Bibliographic Info

Paper provided by Socioeconomic Institute - University of Zurich in its series SOI - Working Papers with number 0002.

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Length: 30 pages
Date of creation: Jun 2000
Date of revision:
Publication status: Published in International Journal of Industrial Organization 22(2), 2004, pages 253-267
Handle: RePEc:soz:wpaper:0002

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Related research

Keywords: investment incentives; networks; quality; railways; vertical externality;

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References

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  1. Nicholas Economides, 1994. "Quality Choice and Vertical Integration," Working Papers 94-22, New York University, Leonard N. Stern School of Business, Department of Economics.
  2. Milgrom, Paul & Roberts, John, 1990. "The Economics of Modern Manufacturing: Technology, Strategy, and Organization," American Economic Review, American Economic Association, vol. 80(3), pages 511-28, June.
  3. John Preston & Gerard Whelan & Chris Nash & Mark Wardman, 2000. "The Franchising of Passenger Rail Services in Britain," International Review of Applied Economics, Taylor & Francis Journals, vol. 14(1), pages 99-112.
  4. Cripps, Martin & Ireland, Norman, 1994. "The Design of Auctions and Tenders with Quality Thresholds: The Symmetric Case," Economic Journal, Royal Economic Society, vol. 104(423), pages 316-26, March.
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