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Access Pricing: A Comparison Between Full Deregulation and Two Alternative Instruments of Access Price Regulation, Cost-Based and Retail-Minus

Author

Listed:
  • Paula Sarmento

    () (CETE, Faculdade de Economia, Universidade do Porto)

  • António Brandão

    () (CETE, Faculdade de Economia, Universidade do Porto)

Abstract

In this paper we compare two instruments of access price regulation, cost-based and retail-minus, with the full deregulation hypothesis. We consider an upstream monopolist firm that sells a vital input to an independent firm and to a subsidiary firm in the downstream market. We conclude that the retail-minus regulation avoids foreclosure and leads to better results than cost-based regulation in terms of investment level and consumer surplus. Moreover, retail-minus regulation allows a higher consumer surplus than deregulation of access price as long as the regulator carefully defines the retail-minus instrument. We also compare retail-minus regulation with the Efficient Component Pricing Rule and we conclude that the two mechanisms can lead to different results.

Suggested Citation

  • Paula Sarmento & António Brandão, 2006. "Access Pricing: A Comparison Between Full Deregulation and Two Alternative Instruments of Access Price Regulation, Cost-Based and Retail-Minus," CEF.UP Working Papers 0603, Universidade do Porto, Faculdade de Economia do Porto.
  • Handle: RePEc:por:cetedp:0603
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    Cited by:

    1. Paul Madden & Mario Pezzino, 2013. "Sports League Quality, Broadcaster TV Rights Bids and Wholesale Regulation of Sports Channels," The School of Economics Discussion Paper Series 1304, Economics, The University of Manchester.
    2. Ben Dkhil, Inès, 2014. "Regulation and Investment in Telecom Network Infrastructure Facilities: The Recent Developments and Debates," MPRA Paper 72910, University Library of Munich, Germany, revised 02 Feb 2015.
    3. Bender, Christian M. & Götz, Georg, 2010. "Coexistence of service- and facility-based competition: The relevance of access prices for "make-or-buy"-decisions," 21st European Regional ITS Conference, Copenhagen 2010: Telecommunications at new crossroads - Changing value configurations, user roles, and regulation 3, International Telecommunications Society (ITS).
    4. Briglauer Wolfgang & Götz Georg & Schwarz Anton, 2011. "Margin Squeeze in Fixed-Network Telephony Markets -- Competitive or Anticompetitive?," Review of Network Economics, De Gruyter, vol. 10(4), pages 1-21, December.
    5. Tselekounis, Markos & Varoutas, Dimitris & Martakos, Drakoulis, 2014. "A CDS approach to induce facilities-based competition over NGA networks," Telecommunications Policy, Elsevier, vol. 38(3), pages 311-331.
    6. Francesc Trillas, 2008. "Regulatory federalism in network industries," Working Papers 2008/8, Institut d'Economia de Barcelona (IEB).
    7. Tselekounis, Markos & Varoutas, Dimitris, 2013. "Investments in next generation access infrastructures under regulatory uncertainty," Telecommunications Policy, Elsevier, vol. 37(10), pages 879-892.
    8. Trillas, Francesc, 2010. "Network industries and regulatory jurisdiction," IESE Research Papers D/859, IESE Business School.
    9. Ben Dkhil, Inès, 2014. "Investment in Fixed Broadband Networks and Access Regulation in Developed and Developing countries: Panel Data Applications," MPRA Paper 59337, University Library of Munich, Germany.
    10. Andrea Gavosto & Guido Ponte & Carla Scaglioni, 2007. "Investment in Next Generation Networks and the Role of Regulation: A Real Option Approach," Working Papers Department of Economics 2007/31, ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa.
    11. Tselekounis, Markos & Xylogianni, Eirini & Varoutas, Dimitris & Martakos, Drakoulis, 2013. "Geographically differentiated NGA deployment," 24th European Regional ITS Conference, Florence 2013 88533, International Telecommunications Society (ITS).
    12. Byun Jeong Wook & Kim Sung-Hwan, 2015. "The Effect of Vertically Differentiated Entry Under Retail-Minus Access Pricing," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 15(2), pages 747-767, April.
    13. Kim, Byung Woon & Park, Joonho & Youl Ko, Chang, 2013. "Cost allocation of WCDMA and wholesale pricing for mVoIP and data services," Telecommunications Policy, Elsevier, vol. 37(1), pages 35-47.

    More about this item

    Keywords

    access regulation; vertical integration; retail-minus; Efficient Component Pricing Rule;

    JEL classification:

    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications

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