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Universal Service Obligations and Competition with Asymmetric Information

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  • Poudou Jean-Christophe

    () (University of Montpellier 1)

  • Roland Michel

    () (Université Laval)

  • Thomas Lionel

    () (Université de Franche-Comté)

Abstract

A regulator imposes a universal service obligation (USO) on a vertically integrated firm that owns an essential network. The regulator has imperfect information about the network's fixed cost. Network access is provided to licensed competitors. The USO consists in a constraint on market coverage and is compensated through a mix of public funds and transfers from entrants. We first use a basic adverse selection model to show that, because of informational rents, a sufficiently high shadow cost of public funds can lead to a lower coverage with the USO than without it. We then show that this result tends to be robust in various realistic extensions of the basic model.

Suggested Citation

  • Poudou Jean-Christophe & Roland Michel & Thomas Lionel, 2009. "Universal Service Obligations and Competition with Asymmetric Information," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 9(1), pages 1-25, October.
    • Handle: RePEc:bpj:bejtec:v:9:y:2009:i:1:n:35
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    References listed on IDEAS

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    Cited by:

    1. Poudou, Jean-Christophe & Roland, Michel, 2014. "Efficiency of uniform pricing in universal service obligations," International Journal of Industrial Organization, Elsevier, vol. 37(C), pages 141-152.
    2. Daniel Danau & Annalisa Vinella, 2017. "Contractual design in agency problems with non-monotonic cost and correlated information," SERIES 02-2017, Dipartimento di Economia e Finanza - Università degli Studi di Bari "Aldo Moro", revised Mar 2017.

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