Access pricing and competition

56 Pages·1994·1.4 MB·English

by  Laffont, Jean-Jacques, 1947-

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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.