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On the problem of network monopoly

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  • Jolian McHardy
  • Michael Reynolds
  • Stephen Trotter

Abstract

We introduce a new regulatory concept: the independent profit-maximising agent, as a model for regulating a network monopoly. The agent sets prices on cross-network goods taking either a complete, or arbitrarily small, share of the associated profit. We examine welfare and profits with and without each agent type under both network monopoly and network duopoly. We show that splitting up the network monopoly (creating network duopoly) may be inferior for both firm(s) and society compared with a network monopoly "regulated" by an agent and that society always prefers any of the four agent regimes over network monopoly and network duopoly.
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Suggested Citation

  • Jolian McHardy & Michael Reynolds & Stephen Trotter, 2012. "On the problem of network monopoly," Theory and Decision, Springer, vol. 73(2), pages 223-248, August.
    • Handle: RePEc:kap:theord:v:73:y:2012:i:2:p:223-248
    DOI: 10.1007/s11238-012-9303-x
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    More about this item

    Keywords

    Network monopoly; Regulatory agent; Welfare; Pricing;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • R48 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Government Pricing and Policy

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