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Second-degree price discrimination and universal access under (weighted average) price cap regulation

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  • Li Ning, Jorge

Abstract

This paper analyzes the efficiency of the Price Cap regulatory scheme and its impact on universal access, when the monopolist is allowed to set a menu of alternative plans as part of a self-selection strategy (second-degree price discrimination) and the cap is calculated as the weighted average of the tariff plans he offers. In this context, we characterized the solution of the monopolist; who, besides offering a menu of plans more distorted than the second-best outcome -even distorting the plan for high-valuation consumers- because the trade-off between efficiency and rents extraction is exhibited in different way, can exclude consumers who are willing to pay for the service -shutdown policy- despite of universal access obligation have been imposed by the regulator. This happens regardless of the weighted average price cap (WAPC) set by the regulator. Consequently, if the Price Cap regulatory scheme is going to be used by the regulator, this mechanism must be applied to a single regulated plan, leaving the monopolist some flexibility to offer alternative plans that will be incentive compatible with this single regulated plan (tariff flexibility).

Suggested Citation

  • Li Ning, Jorge, 2009. "Second-degree price discrimination and universal access under (weighted average) price cap regulation," MPRA Paper 31321, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:31321
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    File URL: https://mpra.ub.uni-muenchen.de/31321/1/MPRA_paper_31321.pdf
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    References listed on IDEAS

    as
    1. Sappington, David E M & Sibley, David S, 1988. "Regulating without Cost Information: The Incremental Surplus Subsidy Scheme," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 29(2), pages 297-306, May.
    2. Bertoletti, Paolo & Poletti, Clara, 1997. "Welfare effects of discriminatory two-part tariffs constrained by price caps," Economics Letters, Elsevier, vol. 56(3), pages 293-298, November.
    3. David Sibley, 1989. "Asymmetric Information, Incentives and Price-Cap Regulation," RAND Journal of Economics, The RAND Corporation, vol. 20(3), pages 392-404, Autumn.
    4. Mark Armstrong & Simon Cowan & John Vickers, 1994. "Regulatory Reform: Economic Analysis and British Experience," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262510790, January.
    5. Anja Lambrecht & Katja Seim & Bernd Skiera, 2007. "Does Uncertainty Matter? Consumer Behavior Under Three-Part Tariffs," Marketing Science, INFORMS, vol. 26(5), pages 698-710, 09-10.
    6. Vogelsang, Ingo, 1989. "Two-part tariffs as regulatory constraints," Journal of Public Economics, Elsevier, vol. 39(1), pages 45-66, June.
    7. Sharkey, William W. & Sibley, David S., 1993. "Optimal non-linear pricing with regulatory preference over customer type," Journal of Public Economics, Elsevier, vol. 50(2), pages 197-229, February.
    8. Mark Armstrong & John Vickers, 1991. "Welfare Effects of Price Discrimination by a Regulated Monopolist," RAND Journal of Economics, The RAND Corporation, vol. 22(4), pages 571-581, Winter.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    price cap; non-linear tariffs; price discrimination; tariff flexibility; universal access;

    JEL classification:

    • L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets

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