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Network Interconnectivity with Regulation and Competition

Author

Listed:
  • Jolian McHardy

    (Department of Economics, The University of Sheffield)

  • Michael Reynolds
  • Stephen Trotter

Abstract

A simple theoretical network model is introduced to investigate the problem of network interconnection. Prices, profits and welfare are compared under welfare maximisation, network monopoly and network monopoly with competition over one part of the network. Given that inducing actual competition may bring disbenefits such as cost duplication and co-ordination costs, we also explore the possibility of a regulator using the threat of entry on a section of the monopoly network in order to bring about the socially preferred level of interconnectivity. We show that there are feasible parameter values for which such a threat is plausible.

Suggested Citation

  • Jolian McHardy & Michael Reynolds & Stephen Trotter, 2011. "Network Interconnectivity with Regulation and Competition," Working Papers 2011020, The University of Sheffield, Department of Economics.
    • Handle: RePEc:shf:wpaper:2011020
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    File URL: http://www.shef.ac.uk/economics/research/serps/articles/2011_020.html
    File Function: First version, 2011
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    More about this item

    Keywords

    Network interconnectivity; monopoly; competition; regulation;
    All these keywords.

    JEL classification:

    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out
    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General

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