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Regulation and Access Pricing with Asymmetric Information

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  • Gianni De Fraja

Abstract

We study in this paper whether the price charged to a competitor for the use of an essential input produced in conditions of natural monopoly should reflect only considerations of relative efficiency between the various potential suppliers. In a model that captures the technological conditions operating in industries such as telephony, gas, rail, where access to a distribution network is essential to the ability to compete, we show that this is not the case. Instead, the access price should be set `pro-competitively': it may be socially optimal to award production to a firm less efficient than the owner of the network.

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Paper provided by Department of Economics, University of York in its series Discussion Papers with number 95/5.

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Handle: RePEc:yor:yorken:95/5

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References

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  1. Baron, David P & Myerson, Roger B, 1982. "Regulating a Monopolist with Unknown Costs," Econometrica, Econometric Society, Econometric Society, vol. 50(4), pages 911-30, July.
  2. 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.
  3. Jean-Jacques Laffont & Jean Tirole, 1994. "Access Pricing and Competition," Working papers 94-31, Massachusetts Institute of Technology (MIT), Department of Economics.
  4. Laffont, Jean-Jacques & Tirole, Jean, 1990. "Optimal Bypass and Cream Skimming," American Economic Review, American Economic Association, vol. 80(5), pages 1042-61, December.
  5. Hart, O. & Tirole, J., 1990. "Vertical Integration And Market Foreclosure," Working papers 548, Massachusetts Institute of Technology (MIT), Department of Economics.
  6. Caillaud, Bernard, 1990. "Regulation, competition, and asymmetric information," Journal of Economic Theory, Elsevier, vol. 52(1), pages 87-110, October.
  7. Laffont, Jean-Jacques & Tirole, Jean, 1986. "Using Cost Observation to Regulate Firms," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 94(3), pages 614-41, June.
  8. Vagliasindi, M. & Waterson, M., 1995. "New Insights on the Interactions Between Regulation and Competition in Vertically Related Markets," The Warwick Economics Research Paper Series (TWERPS) 438, University of Warwick, Department of Economics.
  9. Price, Catherine, 1994. "Transportation charges in the gas industry," Utilities Policy, Elsevier, vol. 4(3), pages 191-197, July.
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Cited by:
  1. Lommerud, Kjell Erik & Sorgard, Lars, 2003. "Entry in telecommunication: customer loyalty, price sensitivity and access prices," Information Economics and Policy, Elsevier, vol. 15(1), pages 55-72, March.
  2. Bier, Christoph & Schmidtchen, Dieter, 2006. "Regulierung in vertikal verknüpften Märkten: Maximieren diskriminierungsfreie kostenorientierte Netznutzungsentgelte die gesellschaftliche Wohlfahrt?," CSLE Discussion Paper Series 2006-02, Saarland University, CSLE - Center for the Study of Law and Economics.
  3. Joyce Sadka & Jose L. Negrin, 2004. "Full vs. Light-Handed Regulation of a Network Industry," Working Papers 0403, Centro de Investigacion Economica, ITAM.
  4. Mumcu, Ayşe & Oğur, Serhan & Zenginobuz, Unal, 2001. "Competition between regulated and non-regulated generators on electric power networks," MPRA Paper 376, University Library of Munich, Germany.
  5. Wirl, Franz, 2011. "Taxing incumbent monopoly to foster entry," Energy Economics, Elsevier, vol. 33(3), pages 388-398, May.
  6. Raineri, Ricardo & Giaconi, Pablo, 2005. "Price and access charge discrimination in electricity distribution: An application to the Chilean case," Energy Economics, Elsevier, vol. 27(5), pages 771-790, September.
  7. Joan Calzada & Francesc Trillas, 2005. "The interconnection prices in telecomunications: from theory to practice," Hacienda Pública Española, IEF, IEF, vol. 173(2), pages 85-125, June.
  8. Grout, Paul A. & Park, In-Uck, 2004. "Promoting competition in the presence of essential facilities," International Journal of Industrial Organization, Elsevier, vol. 22(10), pages 1415-1441, December.
  9. Armstrong, Mark, 2001. "The theory of access pricing and interconnection," MPRA Paper 15608, University Library of Munich, Germany.
  10. Joan Calzada, 2006. "Worksharing and Access Discounts in the Postal Sector with Asymmetric Information," Journal of Regulatory Economics, Springer, vol. 29(1), pages 69-102, 01.
  11. Ingo Vogelsang, 2003. "Price Regulation of Access to Telecommunications Networks," Journal of Economic Literature, American Economic Association, vol. 41(3), pages 830-862, September.
  12. Christoph Bier & Dieter Schmidtchen, . "Regulierung in vertikal verknüpften Märkten: Maximieren diskriminierungsfreie kostenorientierte Netznutzungsentgelte die gesellschaftliche Wohlfahrt?," German Working Papers in Law and Economics, Berkeley Electronic Press 2006-1-1138, Berkeley Electronic Press.
  13. Joyce Sadka. Jose Luis Negrin, 2004. "Full vs. Light-Handed Regulation of a Network Industry," Econometric Society 2004 Latin American Meetings, Econometric Society 257, Econometric Society.

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