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Awarding monopoly franchises repeatedly: are second-best block-rate tariffs attainable without regulation?

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  • Jorg Borrmann

Abstract

Under economies of scale, Demsetz's (1968) proposal of franchise bidding results, at best, in uniform prices approaching average cost. This article questions the accepted belief that the auctioneer always needs to know the market demand function, if the concept is modified so as to allow for bids consisting of block-rate tariffs in order to increase welfare. Given a setting of repeated auctions, the auctioneer can apply a sequential mechanism to evaluate bids, instead of evaluating them in each auction independently. We characterize the conditions under which a second-best block-rate tariff for given thresholds is approached in equilibrium.

Suggested Citation

  • Jorg Borrmann, 2008. "Awarding monopoly franchises repeatedly: are second-best block-rate tariffs attainable without regulation?," Applied Economics, Taylor & Francis Journals, vol. 40(12), pages 1519-1528.
  • Handle: RePEc:taf:applec:v:40:y:2008:i:12:p:1519-1528
    DOI: 10.1080/00036840600829144
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    References listed on IDEAS

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    1. Brown,Stephen J. & Sibley,David Sumner, 1986. "The Theory of Public Utility Pricing," Cambridge Books, Cambridge University Press, number 9780521314008, April.
    2. Sorana, V., 2003. "Competitive Procurement and Asset Specificity," Discussion Paper 2003-96, Tilburg University, Center for Economic Research.
    3. Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121743, January.
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