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Efficient Access Pricing and Endogenous Market Structure

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  • Kanishka Dam
  • Axel Gautier
  • Manipushpak Mitra

Abstract

We analyze a model of regulated competition in differentiated retail goods and services between an incumbent firm, who owns a network good (an essential input) and a potential entrant, whose cost of production is private information. The regulator sets the retail prices and the access charge that the entrant pays to the incumbent. The decision of the (potential) competitor to enter the retail market crucially depends on the regulatory mechanism, and consequently the market structure is endogenous. We analyze the efficient mechanism that gives rise to a set of “modified” Ramsey prices. We derive a cut-off level of entrant’s marginal cost below which the induced market is a duopoly. We show that, under a linear demand system, there is inefficient entry compared to the social optimum.

Suggested Citation

  • Kanishka Dam & Axel Gautier & Manipushpak Mitra, 2008. "Efficient Access Pricing and Endogenous Market Structure," CREPP Working Papers 0802, Centre de Recherche en Economie Publique et de la Population (CREPP) (Research Center on Public and Population Economics) HEC-Management School, University of Liège.
  • Handle: RePEc:rpp:wpaper:0802
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    File URL: http://www2.ulg.ac.be/crepp/papers/crepp-wp200802.pdf
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    References listed on IDEAS

    as
    1. Laffont, Jean-Jacques & Tirole, Jean, 1994. "Access pricing and competition," European Economic Review, Elsevier, vol. 38(9), pages 1673-1710, December.
    2. Armstrong, Mark & Doyle, Chris & Vickers, John, 1996. "The Access Pricing Problem: A Synthesis," Journal of Industrial Economics, Wiley Blackwell, vol. 44(2), pages 131-150, June.
    3. Lewis, Tracy R. & Sappington, David E. M., 1999. "Access pricing with unregulated downstream competition," Information Economics and Policy, Elsevier, vol. 11(1), pages 73-100, March.
    4. Bloch Francis & Gautier Axel, 2008. "Access Pricing and Entry in the Postal Sector," Review of Network Economics, De Gruyter, vol. 7(2), pages 1-24, June.
    5. Axel Gautier & Manipushpak Mitra, 2008. "Regulation of an Open Access Essential Facility," Economica, London School of Economics and Political Science, vol. 75(300), pages 662-682, November.
    6. GAUTIER, Axel, 2005. "Network financing with two-part and single tariff," CORE Discussion Papers 2005034, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Bloch Francis & Gautier Axel, 2008. "Access Pricing and Entry in the Postal Sector," Review of Network Economics, De Gruyter, vol. 7(2), pages 1-24, June.

    More about this item

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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