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Congestion pricing of inputs in vertically related markets

Author

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  • isamu matsukawa

    (musashi university)

Abstract

This paper conducts a welfare analysis of a two-part tariff that is applied to the congestion pricing of inputs supplied by a natural monopolist with increasing returns to scale to competitive firms that require an input in a fixed proportion to output. Congestion pricing of inputs is optimal for both the welfare-maximizing regulator and the profit-maximizing monopolist if it is applied in the form of a uniform price for the input. However, a two-part tariff for the congestion pricing of inputs is optimal if competition in the downstream market is imperfect or if there is demand uncertainty in the market.

Suggested Citation

  • isamu matsukawa, 2005. "Congestion pricing of inputs in vertically related markets," Industrial Organization 0506012, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpio:0506012
    Note: Type of Document - pdf; pages: 35
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    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/io/papers/0506/0506012.pdf
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    References listed on IDEAS

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    Cited by:

    1. Matsukawa, Isamu, 2008. "The effects of average revenue regulation on electricity transmission investment and pricing," Energy Economics, Elsevier, vol. 30(3), pages 696-714, May.
    2. Stähler, Frank & Traub, Stefan, 2009. "Privatization and liberalization in vertically linked markets," TranState Working Papers 95, University of Bremen, Collaborative Research Center 597: Transformations of the State.

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    Keywords

    two-part tariff;

    JEL classification:

    • L - Industrial Organization

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