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A Regulated Firm's Incentive to Discriminate: A Reevaluation and Extension of Weisman's Result

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  • Reiffen, David

Abstract

This note reexamines the incentive of a regulated monopolist with an unregulated, vertically-related affiliate to discriminate against rivals of the affiliate. Taking Weisman's (1995) model as a framework, I show that his analysis understates the incentive to discriminate. My analysis shows that the incentive to discriminate exists more generally than his analysis suggests, and that the size of the incentive depends in an intuitive way on factors such as the stringency of regulation, the cost of discriminating, and the degree of substitution between the products of the affiliate and its rival. Copyright 1998 by Kluwer Academic Publishers

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  • Reiffen, David, 1998. "A Regulated Firm's Incentive to Discriminate: A Reevaluation and Extension of Weisman's Result," Journal of Regulatory Economics, Springer, vol. 14(1), pages 79-86, July.
  • Handle: RePEc:kap:regeco:v:14:y:1998:i:1:p:79-86
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    References listed on IDEAS

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    1. George J. Stigler, 1971. "The Theory of Economic Regulation," Bell Journal of Economics, The RAND Corporation, vol. 2(1), pages 3-21, Spring.
    2. Geoff Edwards & Leonard Waverman, 2006. "The Effects of Public Ownership and Regulatory Independence on Regulatory Outcomes," Journal of Regulatory Economics, Springer, vol. 29(1), pages 23-67, January.
    3. Levy, Brian & Spiller, Pablo T, 1994. "The Institutional Foundations of Regulatory Commitment: A Comparative Analysis of Telecommunications Regulation," Journal of Law, Economics, and Organization, Oxford University Press, vol. 10(2), pages 201-246, October.
    4. Hausman, Jerry & Tardiff, Timothy & Belinfante, Alexander, 1993. "The Effects of the Breakup of AT&T on Telephone Penetration in the United States," American Economic Review, American Economic Association, vol. 83(2), pages 178-184, May.
    5. Spiller, Pablo T, 1996. "Institutions and Commitment," Industrial and Corporate Change, Oxford University Press, vol. 5(2), pages 421-452.
    6. Mark Armstrong & Simon Cowan & John Vickers, 1994. "Regulatory Reform: Economic Analysis and British Experience," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262510790, January.
    7. Armstrong, Mark, 2001. "The theory of access pricing and interconnection," MPRA Paper 15608, University Library of Munich, Germany.
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    Cited by:

    1. Riechmann, Christoph, 2000. "Strategic pricing of grid access under partial price-caps -- electricity distribution in England and Wales," Energy Economics, Elsevier, vol. 22(2), pages 187-207, April.
    2. Stefan Buehler & Dennis Gärtner & Daniel Halbheer, 2006. "Deregulating Network Industries: Dealing with Price-quality Tradeoffs," Journal of Regulatory Economics, Springer, vol. 30(1), pages 99-115, July.
    3. Bose, Arup & Pal, Debashis & Sappington, David E.M., 2017. "Pricing to preclude sabotage in regulated industries," International Journal of Industrial Organization, Elsevier, vol. 51(C), pages 162-184.
    4. Bier, Christoph & Schmidtchen, Dieter, 2006. ""Golden-Gans"-Effekt, Preisdiskriminierungsgefahr und die Regulierung von Netznutzungsentgelten," CSLE Discussion Paper Series 2006-01, Saarland University, CSLE - Center for the Study of Law and Economics.
    5. Mark Armstrong & David E.M. Sappington, 2006. "Regulation, Competition and Liberalization," Journal of Economic Literature, American Economic Association, pages 325-366.
    6. Christoph Bier & Dieter Schmidtchen, "undated". "„Golden-Gans“-Effekt, Preisdiskriminierungsgefahr und die Regulierung von Netznutzungsentgelten," German Working Papers in Law and Economics 2006-1-1137, Berkeley Electronic Press.
    7. David Mandy & David Sappington, 2007. "Incentives for sabotage in vertically related industries," Journal of Regulatory Economics, Springer, pages 235-260.
    8. Dennis Weisman & Michael Williams, 2001. "The Costs and Benefits of Long-Distance Entry: Regulation and Non-Price Discrimination," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 18(3), pages 275-282, May.
    9. Mandy, David M. & Mayo, John W. & Sappington, David E.M., 2016. "Targeting efforts to raise rivals' costs: Moving from “Whether” to “Whom”," International Journal of Industrial Organization, Elsevier, vol. 46(C), pages 1-15.
    10. Brennan, Timothy, 2005. "Alleged Transmission Undersupply: Is Restructuring the Cure or the Cause?," Discussion Papers dp-05-50, Resources For the Future.
    11. Armstrong, Mark & Sappington, David E.M., 2007. "Recent Developments in the Theory of Regulation," Handbook of Industrial Organization, Elsevier.
    12. Paul Bijl & Martin Peitz, 2009. "Access regulation and the adoption of VoIP," Journal of Regulatory Economics, Springer, vol. 35(2), pages 111-134, April.

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