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Killing the Goose That May Have Laid the Golden Egg?


  • Dieter Schmidtchen

    (Universität des Saarlandes)

  • Christoph Bier

    (Uni-Saarland - Center for the Study of Law and Economics)


The purpose of the paper is (1) to analyze the potential and the incentives for a vertically integrated input monopolist to engage in price-discrimination when there is downstream entry, and (2) to examine the question, whether a cost-based regulation of access charges for electricity grids enhances competition in the downstream-market. The paper shows that the incumbent will never block entry if the entrant is more efficient than the incumbent. The reason is that the input-monopolist can make more profit through input sales than it could generate by producing the downstream product itself. If the entrant does not have a cost advantage either the incumbent or the entrant gets a monopoly position. Providing for a level playing field by means of a cost-based regulation of access charges always creates competition in the downstream-market. The paper also derives the welfare effects of both the liberalization of the downstream-market and the cost-based regulation.

Suggested Citation

  • Dieter Schmidtchen & Christoph Bier, "undated". "Killing the Goose That May Have Laid the Golden Egg?," German Working Papers in Law and Economics 2005-1-1123, Berkeley Electronic Press.
  • Handle: RePEc:bep:dewple:2005-1-1123 Note: oai:bepress:

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    References listed on IDEAS

    1. 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.
    2. Armstrong, Mark & Doyle, Chris & Vickers, John, 1996. "The Access Pricing Problem: A Synthesis," Journal of Industrial Economics, Wiley Blackwell, vol. 44(2), pages 131-150, June.
    3. Laffont, Jean-Jacques & Tirole, Jean, 1996. "Creating Competition through Interconnection: Theory and Practice," Journal of Regulatory Economics, Springer, vol. 10(3), pages 227-256, November.
    4. Chen, Yongmin, 2001. "On Vertical Mergers and Their Competitive Effects," RAND Journal of Economics, The RAND Corporation, vol. 32(4), pages 667-685, Winter.
    5. Weisman, Dennis L & Kang, Jaesung, 2001. "Incentives for Discrimination when Upstream Monopolists Participate in Downstream Markets," Journal of Regulatory Economics, Springer, vol. 20(2), pages 125-139, September.
    6. Stefan Buehler, 2005. "The Promise and Pitfalls of Restructuring Network Industries," German Economic Review, Verein für Socialpolitik, vol. 6(2), pages 205-228, May.
    7. Muller, Chr. & Wienken, W., 2004. "Measuring the degree of economic opening in the German electricity market," Utilities Policy, Elsevier, vol. 12(4), pages 283-290, December.
    8. Song, Jae-Do & Kim, Jae-Cheol, 2001. "Strategic Reaction of Vertically Integrated Firms to Downstream Entry: Deterrence or Accommodation," Journal of Regulatory Economics, Springer, vol. 19(2), pages 183-199, March.
    9. Gert Brunekreeft, 2002. "Regulation and Third-Party Discrimination in the German Electricity Supply Industry," European Journal of Law and Economics, Springer, vol. 13(3), pages 203-220, May.
    10. Susanne Bonomo & Massimo Filippini & Peter Zweifel, 1998. "Neue Aufschlüsse über die Elektrizitätsnachfrage der schweizerischen Haushalte," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 134(III), pages 415-436, September.
    11. J. Gregory Sidak & William Baumol, 1994. "Toward Competition in Local Telephony," Books, American Enterprise Institute, number 52984.
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    More about this item


    discrimination; regulation; vertical integration; electricity; access charges; sabotage;

    JEL classification:

    • L - Industrial Organization
    • L - Industrial Organization
    • L - Industrial Organization

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