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Rent Extraction by an Unregulated essential Facility

Author

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  • Boldron, F.
  • Hariton, C.

Abstract

This paper shows that a regulator should be careful when regulating a final product which industry is characterized by an unregulated essential facility sold through non-linear tariffs. Two regulatory environments are considered: the Laffont-Tirole framework with exogenous public funds and the Ramsey-Boiteux setting with a unique budget constraint over all the regulated activities. In both cases, the upstream monopoly obtains greater profits when there is regulation than when there is not, i.e. when the upstream monopoly deals directly with the downstream firm. Therefore, if it has this opportunity, the regulator chooses not to regulate the downstream firm in order to linit this rent extraction.

Suggested Citation

  • Boldron, F. & Hariton, C., 2000. "Rent Extraction by an Unregulated essential Facility," Papers 00-538, Toulouse - GREMAQ.
  • Handle: RePEc:fth:gremaq:00-538
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    Keywords

    TARIFFS ; REGULATIONS ; MONOPOLIES;

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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