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Mechanisms of funding for Universal Service Obligations: the electricity case

  • Mirabel, Francois
  • Poudou, Jean-Christophe

The transition towards a more competitive regime in network industries (and specially in electricity sector) raises the relevant question of funding for the Universal Service Obligations (USOs). Our paper focuses on two ways of funding for universal service and equal treatment obligations (Ubiquity and Non Discrimination constraints): the funding through access charge (CS regime) or taxation (T regime). Using a network model including competition between an historical monopoly (in charge for the USOs) and an entrant, we obtain some results concerning gains and losses of social welfare due to those mechanisms. We show that most of the time it is socially better to let the historical monopoly be active whatever the type of funding for USOs applying, and whatever profitability of the firms is. However, when the entrant is active, we can highlight that the introduction of the T regime (compared to the CS one) implies either welfare deterioration or an entry prevention strategy by the historical Þrm. Therefore, the T regime could not be an argument for the regulator to promote vertical separation of the historical firm (according to the European community line).

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Article provided by Elsevier in its journal Energy Economics.

Volume (Year): 26 (2004)
Issue (Month): 5 (September)
Pages: 801-823

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Handle: RePEc:eee:eneeco:v:26:y:2004:i:5:p:801-823
Contact details of provider: Web page: http://www.elsevier.com/locate/eneco

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  1. Anton, James J. & Vander Weide, James H. & Vettas, Nikolaos, 1999. "Strategic Pricing and Entry under Universal Service and Cross-Market Price Constraints," Working Papers 99-04, Duke University, Department of Economics.
  2. Chone, Philippe & Flochel, Laurent & Perrot, Anne, 2000. "Universal service obligations and competition," Information Economics and Policy, Elsevier, vol. 12(3), pages 249-259, September.
  3. Armstrong, M. & Doyle, C. & Vickers, J., 1995. "The access pricing problem: a synthesis," Discussion Paper Series In Economics And Econometrics 9532, Economics Division, School of Social Sciences, University of Southampton.
  4. Mark Armstrong, 2001. "Access Pricing, Bypass, and Universal Service," American Economic Review, American Economic Association, vol. 91(2), pages 297-301, May.
  5. H. Cremer & F. Gasmi & A. Grimaud & J. J. Laffont, 2001. "Universal Service: An economic perspective," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 72(1), pages 5-43, 03.
  6. Philippe Choné & Laurent Flochel & Anne Perrot, 1999. "Allocating and Funding Universal Service Obligations in a Competitive Network Market," Working Papers 99-55, Centre de Recherche en Economie et Statistique.
  7. Chone, Philippe & Flochel, Laurent & Perrot, Anne, 2002. "Allocating and funding universal service obligations in a competitive market," International Journal of Industrial Organization, Elsevier, vol. 20(9), pages 1247-1276, November.
  8. Madet, C. & Mirabel, F. & Poudou, J.-C. & Roland, M., 2004. "Funding Universal Service Obligations with an Essential Facility: Charges vs. Taxes and Subsidies," Cahiers du CREDEN (CREDEN Working Papers) 04.07.47, CREDEN (Centre de Recherche en Economie et Droit de l'Energie), Faculty of Economics, University of Montpellier 1.
  9. repec:fth:inseep:9955 is not listed on IDEAS
  10. David, L. & Mirabel, F., 2000. "Structure du marche gazier americain, reglementation et tarification de l'acces des tiers au reseau," Cahiers du CREDEN (CREDEN Working Papers) 00.06.17, CREDEN (Centre de Recherche en Economie et Droit de l'Energie), Faculty of Economics, University of Montpellier 1.
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