Essential Facility Financing and Market Structure
The Paper analyses the funding of an infrastructure project (high speed train line, platform, tunnel, harbor, regional airport, fibre-to-the-home network, etc.) in a situation in which an incumbent operator has private information about market profitability (demand, cost) and the infrastructure owner is subject to a budget constraint, either on a per project basis or over the entire infrastructure. An open access policy raises welfare, but may make the project non-viable since funding must be provided by capital contributions and access charges. The infrastructure owner can ask the incumbent for a higher capital contribution if the latter insists on an exclusive use. Yet, such screening is at odds with social goals: The incumbent is willing to pay more for exclusivity, the higher the demand (the lower the cost), that is precisely when competition yields the highest benefits. At the optimum, the incumbent's information impacts the decision of whether to build the infrastructure, but is not used to determine market structure. The Paper further shows that an absence of long-term licencing favours monopoly franchising, while a threat of regulatory capture creates an open-access presumption.
|Date of creation:||May 2001|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
|Order Information:|| Email: |
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Engel, Eduardo & Fischer, Ronald & Galetovic, Alexander, 1997.
"Highway Franchising: Pitfalls and Opportunities,"
American Economic Review,
American Economic Association, vol. 87(2), pages 68-72, May.
- Eric Maskin, 1998.
"Nash Equilibrium and Welfare Optimality,"
Harvard Institute of Economic Research Working Papers
1829, Harvard - Institute of Economic Research.
- Caillaud, Bernard & Tirole, Jean, 2004.
"Essential facility financing and market structure,"
Journal of Public Economics,
Elsevier, vol. 88(3-4), pages 667-694, March.
- Laffont, Jean-Jacques & Tirole, Jean, 1991.
"The Politics of Government Decision-Making: A Theory of Regulatory Capture,"
The Quarterly Journal of Economics,
MIT Press, vol. 106(4), pages 1089-127, November.
- Jean-Jacques Laffont & Jean Tirole, 1988. "The Politics of Government Decision-Making: A Theory of Regulatory Capture," Working papers 506, Massachusetts Institute of Technology (MIT), Department of Economics.
- Jean-Jacques LAFFONT & Jean TIROLE, 1990. "The Politics of Government Decision-Making : a Theory of Regulatory Capture," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 9004, Université de Lausanne, Faculté des HEC, DEEP.
- Lee, Sang Hyup & Hamilton, Jonathan H, 1999. "Using Market Structure to Regulate a Vertically Integrated Monopolist," Journal of Regulatory Economics, Springer, vol. 15(3), pages 223-48, May.
- David P. Baron & Roger B. Myerson, 1979.
"Regulating a Monopolist with Unknown Costs,"
412, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Freixas, Xavier & Guesnerie, Roger & Tirole, Jean, 1985. "Planning under Incomplete Information and the Ratchet Effect," Review of Economic Studies, Wiley Blackwell, vol. 52(2), pages 173-91, April.
- Jean-Jacques Laffont & Jean Tirole, 1985.
"The Dynamics of Incentive Contracts,"
397, Massachusetts Institute of Technology (MIT), Department of Economics.
- Eduardo M.R.A. Engel & Ronald D. Fischer & Alexander Galetovic, 1998.
"Least-Present-Value-of-Revenue Auctions and Highway Franchising,"
NBER Working Papers
6689, National Bureau of Economic Research, Inc.
- Eduardo M. R. A. Engel & Ronald D. Fischer & Alexander Galetovic, 2001. "Least-Present-Value-of-Revenue Auctions and Highway Franchising," Journal of Political Economy, University of Chicago Press, vol. 109(5), pages 993-1020, October.
- Eduardo Engel & Ronald Fischer & Alexander Galetovic, 1998. "Least-Present-Value-of-Revenue Auctions and Highway Franchising," Documentos de Trabajo 37, Centro de Economía Aplicada, Universidad de Chile.
- Baron, David P. & Besanko, David, 1984. "Regulation and information in a continuing relationship," Information Economics and Policy, Elsevier, vol. 1(3), pages 267-302.
- Hart, Oliver D & Tirole, Jean, 1988.
"Contract Renegotiation and Coasian Dynamics,"
Review of Economic Studies,
Wiley Blackwell, vol. 55(4), pages 509-40, October.
- Auriol, Emmanuelle & Laffont, Jean-Jacques, 1992.
"Regulation by Duopoly,"
IDEI Working Papers
20, Institut d'Économie Industrielle (IDEI), Toulouse.
- 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.
- Caillaud, Bernard, 1990. "Regulation, competition, and asymmetric information," Journal of Economic Theory, Elsevier, vol. 52(1), pages 87-110, October.
- Dana, James Jr. & Spier, Kathryn E., 1994. "Designing a private industry : Government auctions with endogenous market structure," Journal of Public Economics, Elsevier, vol. 53(1), pages 127-147, January.
- Bernard Caillaud & Patrick Rey & Roger Guesnerie & Jean Tirole, 1987.
"Government Intervention in Production and Incentives Theory: A Review of Recent Contributions,"
472, Massachusetts Institute of Technology (MIT), Department of Economics.
- B. Caillaud & R. Guesnerie & P. Rey & J. Tirole, 1988. "Government Intervention in Production and Incentives Theory: A Review of Recent Contributions," RAND Journal of Economics, The RAND Corporation, vol. 19(1), pages 1-26, Spring.
When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:2802. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()The email address of this maintainer does not seem to be valid anymore. Please ask to update the entry or send us the correct address
If references are entirely missing, you can add them using this form.