Congestion pricing of inputs in vertically related markets
AbstractThis paper conducts a welfare analysis of a two-part tariff that is applied to the congestion pricing of inputs supplied by a natural monopolist with increasing returns to scale to competitive firms that require an input in a fixed proportion to output. Congestion pricing of inputs is optimal for both the welfare-maximizing regulator and the profit-maximizing monopolist if it is applied in the form of a uniform price for the input. However, a two-part tariff for the congestion pricing of inputs is optimal if competition in the downstream market is imperfect or if there is demand uncertainty in the market.
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Bibliographic InfoPaper provided by EconWPA in its series Industrial Organization with number 0506012.
Length: 35 pages
Date of creation: 28 Jun 2005
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- NEP-ALL-2005-07-03 (All new papers)
- NEP-COM-2005-07-03 (Industrial Competition)
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