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Regulation and access pricing with asymmetric information

  • De Fraja, Gianni

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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Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 43 (1999)
Issue (Month): 1 (January)
Pages: 109-134

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Handle: RePEc:eee:eecrev:v:43:y:1999:i:1:p:109-134
Contact details of provider: Web page: http://www.elsevier.com/locate/eer

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  1. Baron, David P & Myerson, Roger B, 1982. "Regulating a Monopolist with Unknown Costs," Econometrica, Econometric Society, vol. 50(4), pages 911-30, July.
  2. J-J. Laffont & J. Tirole, 1994. "Access Pricing and Competition," Working papers 95-11, Massachusetts Institute of Technology (MIT), Department of Economics.
  3. 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.
  4. Price, Catherine, 1994. "Transportation charges in the gas industry," Utilities Policy, Elsevier, vol. 4(3), pages 191-197, July.
  5. Laffont, Jean-Jacques & Tirole, Jean, 1990. "Optimal Bypass and Cream Skimming," American Economic Review, American Economic Association, vol. 80(5), pages 1042-61, December.
  6. Laffont, Jean-Jacques & Tirole, Jean, 1986. "Using Cost Observation to Regulate Firms," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 614-41, June.
  7. 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.
  8. Hart, O. & Tirole, J., 1990. "Vertical Integration And Market Foreclosure," Working papers 548, Massachusetts Institute of Technology (MIT), Department of Economics.
  9. Caillaud, Bernard, 1990. "Regulation, competition, and asymmetric information," Journal of Economic Theory, Elsevier, vol. 52(1), pages 87-110, October.
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