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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
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    References listed on IDEAS

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    Cited by:

    1. 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.
    2. Vogelsang Ingo, 2013. "The Endgame of Telecommunications Policy? A Survey," Review of Economics, De Gruyter, vol. 64(3), pages 193-270, December.
    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.

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    More about this item

    Keywords

    Regulation; vertically related industries; co-ownership;
    All these 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

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