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Access pricing and competition PDF

56 Pages·1994·1.4 MB·English
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;.":!:!'••.;',-.«::Vs; MJ.T. LIBRAR5ES DEWEY - Digitized by the Internet Archive in 2011 with funding from Boston Library Consortium Member Libraries http://www.archive.org/details/accesspricingcom00laff2 Cewey working paper department of economics ACCESS PRICING AND COMPETITION Jean-Jacques Laffont Jean Tirole 95-11 July, 1994 massachusetts institute of technology 50 memorial drive Cambridge, mass. 02139 ACCESS PRICING AND COMPETITION Jean-Jacques Laffont Jean Tirole 95-11 July, 1994 MASSACHUSE.71z, MSTiTLi<"! OFTECHNOLOGY MR 2 9 1995 LIBRARIES 95-11 Access Pricing and Competition* Jean-Jacques LaiFont^and Jean Tirole* July 6, 1994 *We thank Jerry Hausman and John Vickers for helpful comments. ^Institut Universitaire de France, and Institut d'Economie Industrielle, Toulouse, France *Institut d'Economie Industrielle, Toulouse, France; CERAS, Paris; and MIT, Cam- bridge, MA USA 5--// °t Abstract In many industries (electricity, telecommunications, railways), the network can be described as a natural monopoly. A central issue is how to combine the necessary regulation of the network with the organization of competition in activities which use the network as an input and are potentially competitive (generation ofelectricity, value- added services, road transportation). In this paper we derive access-pricing formulas in the frameworkof an optimal regulation under incomplete information. First, we study how access-pricing formulas take into account the fixed costs of the network and the incentive constraints of the natural monopoly over the network. Second, we examine the difficulties coming from the ac- counting impossibility to disentangle costs of the network and costs of the monopoly's competitive goods. Third, the analysis is extended to the cases where governmental transfers are prohibited, where the competitors have market power, and where competitors are not reg- ulated. Fourth, the possibility some consumers bypass the network is taken into account. Finally the role of access pricing for inducing the best market structure is assessed. The conclusion summarizes our results and suggests avenues of further research.

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