Universal service obligations: The role of subsidization schemes
A universal service obligation (USO) that imposes ubiquity and uniform pricing constraints generally creates strategic links among markets served by the universal service provider (USP). In this paper, we show that adding a unit subsidy in the compensation scheme of a USO helps to counteract the inefficiencies that result from these strategic links. Welfare obtained under different implementations of the USO depends on whether use of the unit subsidy is limited or not. In this respect, franchise bidding for the USO, where firms submit bids for lump-sum subsidies, is welfare-dominated by the exogenous choice of the USP and by pay-or-play regulation. Similarly, the second-best allocation can be attained through the endogenous choice of the USP's geographic area of monopoly, provided the unit subsidy instrument is available.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Steffen H. Hoernig & Tommaso M. Valletti, 2002. "The Interplay Between Regulation and Competitions: The Case of Universal Service Obligations," CESifo Working Paper Series 682, CESifo Group Munich.
- Losada, Ramiro & Ilie, Laura, 2004. "Endogenous financing of the universal service," UC3M Working papers. Economics we044116, Universidad Carlos III de Madrid. Departamento de Economía.
- Mark Armstrong, 2001. "Access Pricing, Bypass, and Universal Service," American Economic Review, American Economic Association, vol. 91(2), pages 297-301, May.
- 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.
- Chone, Philippe & Flochel, Laurent & Perrot, Anne, 2000.
"Universal service obligations and competition,"
Information Economics and Policy,
Elsevier, vol. 12(3), pages 249-259, September.
- Anne Perrot & Laurent Flochel & Philippe Choné, 2000. "Universal service obligations and competition," Post-Print halshs-00144073, HAL.
- Mirabel, Francois & Poudou, Jean-Christophe, 2004. "Mechanisms of funding for Universal Service Obligations: the electricity case," Energy Economics, Elsevier, vol. 26(5), pages 801-823, September.
- Mirabel, F. & Poudou, J.-C., 2003. "Mechanisms of Funding for Universal Service Obligations: the Electricity Case," Cahiers du CREDEN (CREDEN Working Papers) 03.11.41, CREDEN (Centre de Recherche en Economie et Droit de l'Energie), Faculty of Economics, University of Montpellier 1.
- Valletti, Tommaso M & Hoernig, Steffen & Barros, Pedro P, 2002. "Universal Service and Entry: The Role of Uniform Pricing and Coverage Constraints," Journal of Regulatory Economics, Springer, vol. 21(2), pages 169-190, March.
- Barros, Pedro Luis Pita & Hoernig, Steffen & Valletti, Tommaso, 2001. "Universal Service and Entry: the Role of Uniform Pricing and Coverage Constraints," CEPR Discussion Papers 2789, C.E.P.R. Discussion Papers.
- 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.
- Anton, James J. & Vander Weide, James H. & Vettas, Nikolaos, 2002. "Entry auctions and strategic behavior under cross-market price constraints," International Journal of Industrial Organization, Elsevier, vol. 20(5), pages 611-629, May. Full references (including those not matched with items on IDEAS)