IDEAS home Printed from https://ideas.repec.org/p/ieb/wpaper/doc2011-38.html
   My bibliography  Save this paper

Bottleneck co-ownership as a regulatory alternative

Author

Listed:
  • Federico Boffa

    (University of Macerata)

  • John Panzar

    (University of Auckland)

Abstract

This paper proposes a regulatory mechanism for vertically related industries in which the upstream “bottleneck” segment faces significant returns to scale while other (downstream) segments may be more competitive. In the proposed mechanism, the ownership of the upstream firm is allocated to downstream firms in proportion to their shares of input purchases. This mechanism, while preserving downstream competition, partially internalizes the benefits of exploiting economies of scale resulting from an increase in downstream output. We show that this mechanism is more efficient than a disintegrated market structure in which the upstream natural monopoly bottleneck sets a price equal to average cost.

Suggested Citation

  • Federico Boffa & John Panzar, 2011. "Bottleneck co-ownership as a regulatory alternative," Working Papers 2011/38, Institut d'Economia de Barcelona (IEB).
    • Handle: RePEc:ieb:wpaper:doc2011-38
    as

    Download full text from publisher

    File URL: http://ieb.ub.edu/wp-content/uploads/2018/04/2011-IEB-WorkingPaper-38.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. David Sappington, 1983. "Optimal Regulation of a Multiproduct Monopoly with Unknown Technological Capabilities," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 453-463, Autumn.
    2. Kenneth Fjell & Øystein Foros & Debashis Pal, 2010. "Endogenous Average Cost Based Access Pricing," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 36(2), pages 149-162, March.
    3. James W. Friedman, 1973. "A Non-cooperative Equilibrium for Supergames: A Correction," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 40(3), pages 435-435.
    4. Mark Armstrong & David E.M. Sappington, 2006. "Regulation, Competition and Liberalization," Journal of Economic Literature, American Economic Association, vol. 44(2), pages 325-366, June.
    5. Joseph J. Spengler, 1950. "Vertical Integration and Antitrust Policy," Journal of Political Economy, University of Chicago Press, vol. 58(4), pages 347-347.
    6. Loeb, Martin & Magat, Wesley A, 1979. "A Decentralized Method for Utility Regulation," Journal of Law and Economics, University of Chicago Press, vol. 22(2), pages 399-404, October.
    7. repec:bla:jindec:v:49:y:2001:i:3:p:319-33 is not listed on IDEAS
    8. T. Randolph Beard & David L. Kaserman & John W. Mayo, 2001. "Regulation, Vertical Integration and Sabotage," Journal of Industrial Economics, Wiley Blackwell, vol. 49(3), pages 319-333, September.
    9. Kai-Uwe Kuhn & Xavier Vives, 1999. "Excess Entry, Vertical Integration, and Welfare," RAND Journal of Economics, The RAND Corporation, vol. 30(4), pages 575-603, Winter.
    10. Bruce Kogut, 1988. "Joint ventures: Theoretical and empirical perspectives," Strategic Management Journal, Wiley Blackwell, vol. 9(4), pages 319-332, July.
    11. 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 223-248, May.
    12. Daniel F. Spulber, 1989. "Regulation and Markets," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262192756, December.
    13. Richard J. Gilbert & Michael H. Riordan, 1995. "Regulating Complementary Products: A Comparative Institutional Analysis," RAND Journal of Economics, The RAND Corporation, vol. 26(2), pages 243-256, Summer.
    14. John Vickers, 1995. "Competition and Regulation in Vertically Related Markets," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 62(1), pages 1-17.
    15. 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, December.
    16. Philip G. Gayle, 2008. "An Empirical Analysis of the Competitive Effects of the Delta/Continental/Northwest Code-Share Alliance," Journal of Law and Economics, University of Chicago Press, vol. 51(4), pages 743-766, November.
    17. Bresnahan, Timothy F. & Salop, Steven C., 1986. "Quantifying the competitive effects of production joint ventures," International Journal of Industrial Organization, Elsevier, vol. 4(2), pages 155-175, June.
    18. Park, Yong-Sam & Ahn, Byong-Hun, 1999. "Joint ownership and interconnection pricing in network industries," International Review of Economics & Finance, Elsevier, vol. 8(2), pages 183-198, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Vogelsang Ingo, 2013. "The Endgame of Telecommunications Policy? A Survey," Review of Economics, De Gruyter, vol. 64(3), pages 193-270, December.
    2. Kenneth Fjell & Øystein Foros & Hans Jarle Kind, 2015. "On the Choice of Royalty Rule to Cover Fixed Costs in Input Joint Ventures," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 22(3), pages 393-406, November.
    3. Kenneth Fjell & Debashis Pal & David Sappington, 2013. "On the performance of endogenous access pricing," Journal of Regulatory Economics, Springer, vol. 44(3), pages 237-250, December.
    4. Steffen Hoernig & Ingo Vogelsang, 2012. "The ambivalence of two-part tariffs for bottleneck access," Nova SBE Working Paper Series wp568, Universidade Nova de Lisboa, Nova School of Business and Economics.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Armstrong, Mark & Sappington, David E.M., 2007. "Recent Developments in the Theory of Regulation," Handbook of Industrial Organization, in: Mark Armstrong & Robert Porter (ed.), Handbook of Industrial Organization, edition 1, volume 3, chapter 27, pages 1557-1700, Elsevier.
    2. Mark Armstrong & David E.M. Sappington, 2006. "Regulation, Competition and Liberalization," Journal of Economic Literature, American Economic Association, vol. 44(2), pages 325-366, June.
    3. Chi-Chih Lin, 2016. "Can Total Deregulation Be A Better Option Than Partial Deregulation?," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 61(04), pages 1-16, September.
    4. Eduardo M. R. A. Engel & Ronald D. Fischer & Alexander Galetovic, 2004. "How to Auction a Bottleneck Monopoly When Underhand Vertical Agreements are Possible," Journal of Industrial Economics, Wiley Blackwell, vol. 52(3), pages 427-455, September.
    5. Nobel Prize Committee, 2014. "Market power and regulation (scientific background)," Nobel Prize in Economics documents 2014-2, Nobel Prize Committee.
    6. Laffont, Jean-Jacques, 1994. "The New Economics of Regulation Ten Years After," Econometrica, Econometric Society, vol. 62(3), pages 507-537, May.
    7. Eduardo Engel & Ronald Fischer & Alexander Galetovic, 2000. "How to Auction an Essential Facility when Underhand Integration is Possible," Documentos de Trabajo 79, Centro de Economía Aplicada, Universidad de Chile.
    8. Nikogosian, Vigen & Veith, Tobias, 2011. "Vertical integration, separation and non-price discrimination: An empirical analysis of German electricity markets for residential customers," ZEW Discussion Papers 11-069, ZEW - Leibniz Centre for European Economic Research.
    9. Stephen P. King, 1997. "National Competition Policy," The Economic Record, The Economic Society of Australia, vol. 73(222), pages 270-284, September.
    10. David Mandy & David Sappington, 2007. "Incentives for sabotage in vertically related industries," Journal of Regulatory Economics, Springer, vol. 31(3), pages 235-260, June.
    11. Ingo Vogelsang, 2006. "Electricity Transmission Pricing and Performance-based Regulation," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 97-126.
    12. Kenneth Fjell & Øystein Foros & Hans Jarle Kind, 2015. "On the Choice of Royalty Rule to Cover Fixed Costs in Input Joint Ventures," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 22(3), pages 393-406, November.
    13. François Boldron & Cyril Hariton, 2003. "Access charge and imperfect competition," Recherches économiques de Louvain, De Boeck Université, vol. 69(3), pages 319-340.
    14. Mark Armstrong & John Vickers, 2018. "Multiproduct Pricing Made Simple," Journal of Political Economy, University of Chicago Press, vol. 126(4), pages 1444-1471.
    15. Engel, Eduardo & Fischer, Ronald & Galetovic, Alexander, 2005. "Highway franchising and real estate values," Journal of Urban Economics, Elsevier, vol. 57(3), pages 432-448, May.
    16. Antonio Estache & L. Wren-Lewis, 2008. "Towards a Theory of Regulation for Developing Countries: Following Laffont's Lead," Working Papers ECARES 2008_018, ULB -- Universite Libre de Bruxelles.
    17. Alexander Galetovic, 2003. "Integración Vertical en el Sector Eléctrico: Una guía para el usuario (Vertical integration in the electricity sector)," Documentos de Trabajo 158, Centro de Economía Aplicada, Universidad de Chile.
    18. Ismail Saglam, 2024. "The Bayesian approach to monopoly regulation after 40 years," Journal of Regulatory Economics, Springer, vol. 65(1), pages 108-136, June.
    19. King, S.P., 2000. "Does Structure Dominate Regulation? The Case of an Input Monopolist," Department of Economics - Working Papers Series 767, The University of Melbourne.
    20. Michel Mougeot & Florence Naegelen, 2011. "Franchise bidding, regulation and investment costs," Review of Economic Design, Springer;Society for Economic Design, vol. 15(1), pages 37-58, March.

    More about this item

    Keywords

    ;
    ;
    ;

    JEL classification:

    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ieb:wpaper:doc2011-38. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/iebubes.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.