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Infrastructure Quality in Deregulated Industries: Is there an Underinvestment Problem?

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Author Info

  • Stefan Buehler

    ()
    (Socioeconomic Institute, University of Zurich)

  • Armin Schmutzler

    ()
    (Socioeconomic Institute, University of Zurich)

  • Men-Andri Benz

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

Abstract

We investigate how various institutional settings affect a network provider’s incentives to invest in infrastructure quality. Under reasonable assumptions on demand, investment incentives turn out to be smaller under vertical separation than under vertical integration, though we also provide counter-examples. The introduction of downstream competition for the market can sometimes improve incentives. With suitable 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/2002/wp0209.pdf
File Function: First version, 2002
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Bibliographic Info

Paper provided by Socioeconomic Institute - University of Zurich in its series SOI - Working Papers with number 0209.

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Length: 21 pages
Date of creation: Aug 2002
Date of revision:
Publication status: Published in Journal of Industrial Organization 22(2), 2004, pages 253-267
Handle: RePEc:soz:wpaper:0209

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Related research

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

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  1. Wolfstetter,Elmar, 2000. "Topics in Microeconomics," Cambridge Books, Cambridge University Press, number 9780521645348, Fall.
  2. Hart, Oliver, 1995. "Firms, Contracts, and Financial Structure," OUP Catalogue, Oxford University Press, number 9780198288817, Octomber.
  3. Laffont, Jean-Jacques & Tirole, Jean, 1996. "Creating Competition through Interconnection: Theory and Practice," Journal of Regulatory Economics, Springer, vol. 10(3), pages 227-56, November.
  4. W. Kip Viscusi & Joseph E. Harrington & John M. Vernon, 2005. "Economics of Regulation and Antitrust, 4th Edition," MIT Press Books, The MIT Press, edition 4, volume 1, number 026222075x, December.
  5. Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121743, December.
  6. Berndt, Arnold & Kunz, Martin, 1999. "Trassenpreise, InfraCard und Kostendeckung: Diskriminierungsfreier Zugang zum Schienennetz der Deutschen Bahn AG," Discussion Papers 64, University of Freiburg, Institute for Transport Economics and Regional Policy.
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