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Quality Provision in Deregulated Industries: The Railtrack Problem

Author

Listed:
  • Men-Andri Benz

    () (Institute for Strategy and Business Economics, University of Zurich)

  • Stefan Buehler

    () (Socioeconomic Institute, University of Zurich)

  • Armin Schmutzler

    () (Socioeconomic Institute, University of Zurich)

Abstract

This paper studies a network provider's incentives to invest in infrastructure quality. In a simple but general framework, we investigate how various institutional settings affect investment incentives. We show that under reasonable assumptions on demand, investment incentives are smaller under vertical separation than under vertical integration. We consider two strategies for improving investment incentives under vertical separation. First, the introduction of competition for the market can sometimes improve incentives. Second, with non-linear access prices investment incentives under separation become identical to those under integration.

Suggested Citation

  • Men-Andri Benz & Stefan Buehler & Armin Schmutzler, 2000. "Quality Provision in Deregulated Industries: The Railtrack Problem," SOI - Working Papers 0002, Socioeconomic Institute - University of Zurich.
  • Handle: RePEc:soz:wpaper:0002
    as

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    File URL: http://www.econ.uzh.ch/static/wp_soi/wp0002.pdf
    File Function: First version, 2000
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    References listed on IDEAS

    as
    1. Economides, Nicholas, 1999. "Quality choice and vertical integration," International Journal of Industrial Organization, Elsevier, vol. 17(6), pages 903-914, August.
    2. John Preston & Gerard Whelan & Chris Nash & Mark Wardman, 2000. "The Franchising of Passenger Rail Services in Britain," International Review of Applied Economics, Taylor & Francis Journals, vol. 14(1), pages 99-112.
    3. Cripps, Martin & Ireland, Norman, 1994. "The Design of Auctions and Tenders with Quality Thresholds: The Symmetric Case," Economic Journal, Royal Economic Society, vol. 104(423), pages 316-326, March.
    4. Milgrom, Paul & Roberts, John, 1990. "The Economics of Modern Manufacturing: Technology, Strategy, and Organization," American Economic Review, American Economic Association, vol. 80(3), pages 511-528, June.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    investment incentives; networks; quality; railways; vertical externality;

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L43 - Industrial Organization - - Antitrust Issues and Policies - - - Legal Monopolies and Regulation or Deregulation
    • L92 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Railroads and Other Surface Transportation

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