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The Ambivalence of Two-Part Tariffs for Bottleneck Access

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  • Steffen Hoernig
  • Ingo Vogelsang

Abstract

Two-part tariffs, when used at the retail level, increase efficiency by lowering the price of marginal units. The same potential for higher efficiency exists for two-part tariffs at wholesale level for a given market structure, but the fixed part of the wholesale tariff can negatively affect the latter. In a simulated competition model of next-generation telecommunications access networks that has been calibrated with engineering cost data, we show that the latter effects strongly outweigh the former. That is, substituting a cost-based linear wholesale access tariff with revenue-equivalent two-part tariffs reduces the number of access seekers and therefore leads to higher prices and lower welfare and consumer surplus. JEL codes:

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Bibliographic Info

Paper provided by Universidade Nova de Lisboa, Faculdade de Economia in its series FEUNL Working Paper Series with number wp568.

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Length: 17 pages
Date of creation: 2012
Date of revision:
Handle: RePEc:unl:unlfep:wp568

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  1. Ordover, Janusz A & Panzar, John C, 1982. "On the Nonlinear Pricing of Inputs," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 23(3), pages 659-75, October.
  2. Valletti, Tommaso, 1998. "Two-part access pricing and imperfect competition," Information Economics and Policy, Elsevier, Elsevier, vol. 10(3), pages 305-323, September.
  3. Vogelsang, Ingo, 2001. "Price Regulation for Independent Transmission Companies," Journal of Regulatory Economics, Springer, Springer, vol. 20(2), pages 141-65, September.
  4. Federico Boffa & John Panzar, 2011. "Bottleneck co-ownership as a regulatory alternative," Working Papers 2011/38, Institut d'Economia de Barcelona (IEB).
  5. von Ungern-Sternberg, Thomas, 1991. "Monopolistic Competition on the Pyramid," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 39(4), pages 355-68, June.
  6. Robert D. Willig, 1978. "Pareto-Superior Nonlinear Outlay Schedules," Bell Journal of Economics, The RAND Corporation, The RAND Corporation, vol. 9(1), pages 56-69, Spring.
  7. Roman Inderst & Greg Shaffer, 2009. "Market power, price discrimination, and allocative efficiency in intermediate-goods markets," RAND Journal of Economics, RAND Corporation, RAND Corporation, vol. 40(4), pages 658-672.
  8. Kenneth Fjell & Øystein Foros & Debashis Pal, 2010. "Endogenous Average Cost Based Access Pricing," Review of Industrial Organization, Springer, Springer, vol. 36(2), pages 149-162, March.
  9. Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262121743, December.
  10. Brito, Duarte & Pereira, Pedro & Vareda, João, 2010. "Can two-part tariffs promote efficient investment on next generation networks?," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 28(3), pages 323-333, May.
  11. Tilman Klumpp & Xuejuan Su, 2010. "Open Access and Dynamic Efficiency," American Economic Journal: Microeconomics, American Economic Association, American Economic Association, vol. 2(2), pages 64-96, May.
  12. Ingo Vogelsang, 2003. "Price Regulation of Access to Telecommunications Networks," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 41(3), pages 830-862, September.
  13. Panzar, J. C. & Sibley, D. S., 1989. "Optimal two-part tariffs for inputs : The case of imperfect competition," Journal of Public Economics, Elsevier, Elsevier, vol. 40(2), pages 237-249, November.
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Cited by:
  1. Inderst, Roman & Peitz, Martin, 2013. "Investment under uncertainty and regulation of new access networks," ZEW Discussion Papers, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research 13-020, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.

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