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Killing the Goose That May Have Laid the Golden Egg: Only the Data Know Whether Sabotage Pays

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  • Mandy, David M

Abstract

A lively debate has developed concerning the incentive for a price-regulated input monopolist to engage in non-price discrimination if it vertically integrates into downstream markets. This paper identifies the key industry characteristics that determine whether such discrimination is likely, and studies both theoretically and numerically the tradeoffs among three important characteristics in the simplest extant model. The incentive to discriminate is theoretically ambiguous, but data for the US telecommunications industry indicate that discrimination is likely in the absence of policy-induced countervailing incentives. Countervailing policies include direct penalties for discriminatory behavior, forcing vertical autonomy, and fostering upstream competition. Copyright 2000 by Kluwer Academic Publishers

Suggested Citation

  • Mandy, David M, 2000. "Killing the Goose That May Have Laid the Golden Egg: Only the Data Know Whether Sabotage Pays," Journal of Regulatory Economics, Springer, vol. 17(2), pages 157-172, March.
  • Handle: RePEc:kap:regeco:v:17:y:2000:i:2:p:157-72
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    References listed on IDEAS

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    1. Peter Navarro, 1982. "Public Utility Commission Regulation: Performance, Determinants, and Energy Policy Impacts," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 119-140.
    2. Fields, Joseph A & Klein, Linda S & Sfiridis, James M, 1997. "A Market Based Evaluation of the Election versus Appointment of Regulatory Commissioners," Public Choice, Springer, vol. 92(3-4), pages 337-351, September.
    3. Timothy Besley & Stephen Coate, 2003. "Elected Versus Appointed Regulators: Theory and Evidence," Journal of the European Economic Association, MIT Press, vol. 1(5), pages 1176-1206, September.
    4. Smart, Susan R, 1994. "The Consequences of Appointment Methods and Party Control for Telecommunications Pricing," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 3(2), pages 301-323, Summer.
    5. David E. M Sappington, 2005. "On the Irrelevance of Input Prices for Make-or-Buy Decisions," American Economic Review, American Economic Association, vol. 95(5), pages 1631-1638, December.
    6. Dale Lehman & Dennis Weisman, 2000. "The Political Economy of Price Cap Regulation," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 16(4), pages 343-356, June.
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