On the Allocative Efficiency of Ownership Unbundling
AbstractWe analyze vertical structures where a regulated network operator serves n network users, and the network users compete in quantities for customers. We distinguish two cases: (i) none of the network users are related to the network operator (ownership unbundling), (ii) one of the network users is partially integrated with the operator and the others are disintegrated (legal unbundling). We seek to understand when ownership unbundling leads to lower customer prices, and formalize necessary conditions. In general, legal unbundling implies a less effective regulation, but it reduces the degree of market distortion caused by the difference between marginal costs and average costs (= regulated prices of network usage). We find that the necessary condition is not satisfied for realistic values of the relevant parameters, i.e. legal unbundling leads to lower costumer prices than ownership unbundling in most relevant markets. --
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Bibliographic InfoPaper provided by European University Viadrina Frankfurt (Oder), Department of Business Administration and Economics in its series Discussion Papers with number 255.
Date of creation: 2006
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Unbundling; vertical integration; Cournot competition;
Find related papers by JEL classification:
- L50 - Industrial Organization - - Regulation and Industrial Policy - - - General
- D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
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- van Koten, S. & Ortmann, A., 2008.
"The unbundling regime for electricity utilities in the EU: A case of legislative and regulatory capture?,"
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"Ownership unbundling in electricity distribution: empircal evidence from New Zealand,"
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- Gugler, Klaus & Rammerstorfer, Margarethe & Schmitt, Stephan, 2013. "Ownership unbundling and investment in electricity markets — A cross country study," Energy Economics, Elsevier, Elsevier, vol. 40(C), pages 702-713.
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