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Efficient access pricing and endogenous market structure

Author

Listed:
  • DAM, Kaniska
  • GAUTIER, Axel

    (Université catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE))

  • MITRA, Manipushpak

Abstract

We analyse a (differentiated good) industry where an incumbent firm owns a network good (essential input) and faces potential competition in the (downstream) retail market. Unlike the traditional approach, we consider a scenario where the decision to compete or not in the downstream segment is endogenous, and this decision depends on the particular mechanism designed by the utilitarian regulator. We assume that the technology of the potential entrant is private information. We derive the efficient (Ramsey) prices and access charge taking the impact of a non-discriminatory mechanism on entry decision into account. We assert that the optimal pricing formula must include a Ramsey term that is inversely related to the "modified" superelasticity of the retail good under consideration. We further show, under unknown cost, that there might be "excess" or "too little" entry compared to the socially optimal level.

Suggested Citation

  • DAM, Kaniska & GAUTIER, Axel & MITRA, Manipushpak, 2007. "Efficient access pricing and endogenous market structure," CORE Discussion Papers 2007004, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  • Handle: RePEc:cor:louvco:2007004
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    File URL: http://www.uclouvain.be/cps/ucl/doc/core/documents/coredp2007_4.pdf
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    References listed on IDEAS

    as
    1. Bloch Francis & Gautier Axel, 2008. "Access Pricing and Entry in the Postal Sector," Review of Network Economics, De Gruyter, vol. 7(2), pages 1-24, June.
    2. Laffont, Jean-Jacques & Tirole, Jean, 1994. "Access pricing and competition," European Economic Review, Elsevier, vol. 38(9), pages 1673-1710, December.
    3. Lewis, Tracy R. & Sappington, David E. M., 1999. "Access pricing with unregulated downstream competition," Information Economics and Policy, Elsevier, vol. 11(1), pages 73-100, March.
    4. 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.
    5. GAUTIER, Axel, 2005. "Network financing with two-part and single tariff," CORE Discussion Papers 2005034, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    6. Axel Gautier & Manipushpak Mitra, 2008. "Regulation of an Open Access Essential Facility," Economica, London School of Economics and Political Science, vol. 75(300), pages 662-682, November.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Bloch Francis & Gautier Axel, 2008. "Access Pricing and Entry in the Postal Sector," Review of Network Economics, De Gruyter, vol. 7(2), pages 1-24, June.

    More about this item

    Keywords

    non-discriminatory access; endogenous competition; modified superelasticity;

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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