Access Pricing Under Imperfect Competition
The study investigates optimal access charges when the downstream markets are imperfectly competitive. Optimal access charges have been examined in the literature mainly under the condition where only the incumbent has market power. However, network industries tend to exhibit an oligopolistic market structure. Therefore, the optimal access charge under imperfect competition is an important consideration when regulators determine access charges. This essay investigates some general principles for setting optimal access charges when downstream markets are imperfectly competitive. One of the primary objectives of this essay is to show the importance of the break-even constraint when first-best access charges are not feasible. Specifically, we show that when the first-best access charges are not feasible, the imposition of the break-even constraint on only the upstream profit of the incumbent is superior to the case where break-even constraint applies to overall incumbent profit, where the latter is the most commonly used constraint in the access pricing literature. Bypass and its implications for optimal access charges and welfare are also explored.
ARMSTRONG, M., (2002). The Theory of Access Pricing and Interconnection, in CAVE, M. E., MAJUNDAR, S. K., VOGELSANG, I., (Eds.), Handbook of Telecommunications Economics: Vol. 1, structure, regulation and competition. Amsterdam: Elsevier Science, North-Holland (pp. 295-384).
ARMSTRONG, M., VICKERS, J., (1998). The Access Pricing Problem with Deregulation: A Note. Journal of Industrial Economics, 46, pp. 115-121.
ARMSTRONG, M., DOYLE, C., VICKERS, J., (1996). The Access Pricing Problem: A Synthesis, Journal of Industrial Economics, 44, pp. 131-150.
BAUMOL, W., (1983). Some Subtle Issues in Railroad Regulation, International Journal of Transport Economics, 10, pp. 341-355.
BAUMOL, W., SIDAK, J. G., (1994). Toward Competition in Local Telephony. Cambridge: MIT Press
BERG, S. V., TSCHIRHART, J., (1988). Natural Monopoly Regulation. Cambridge University Press.
DEWENTER, R., HAUCAP, J., (Eds), (2007). Access Pricing: Theory and Practice. Elsevier.
GÓMEZ-IBÁÑEZ, J. A., (2003). Regulating Infrastructure: Monopoly, Contracts and Discretion. Harvard University Press.
KAHN, A. E, TARDIFF, T. J. and WEISMAN D. L., (1999). The Telecommunication Act at the Three Years: An Economic Evaluation of Its Implementation by the Federal Communications Commission. Information Economics and Policy, 11, pp. 319-365.
LAFFONT, J.-J., TIROLE, J., (2000). Competition in Telecommunications. Cambridge, Massachusetts: The MIT Press.
LAFFONT, J.-J., TIROLE, J., (1994). Access Pricing and Competition, European Economic Review, 38, pp. 1673-1710.
LAFFONT, J.-J., TIROLE, J., (1993), A Theory of Incentives in Procurement and Regulation. Cambridge: MIT Press.
LAFFONT, J.-J., TIROLE, J., (1990). Optimal Bypass and Cream Skimming. American Economic Review, 80, pp. 1042-1061.
LIPSKY, A. B. and SIDAK, G., (1999). Essential Facilities. Stanford Law Review, May, 91, pp. 313-317.
ROBINSON, G. O., WEISMAN, D. L., (2008). Designing Competition Policy for Telecommunications. Review of Network Economics, 7, pp. 509-546.
SAPPINGTON, D. E. M., WEISMAN, D., (2005). Self Sabotage. Journal of Regulatory Economics, 27(2), pp. 155-175.
SHERMAN, R., (2007). Market Regulation. Addison-Wesley.
SHERMAN, R., (1989). The Regulation of Monopoly. Cambridge University Press.
SPENCER, B. J., BRANDER, J. A., (1983). Second Best Pricing of Publicly Produced Inputs: The Case of Downstream Imperfect Competition. Journal of Public Economics, 20, pp. 113-119.
VICKERS, J., (1995). Competition and Regulation in Vertically Ralated Markets. Review of Economic Studies, 62, pp. 1-17.
VIVES, X., (2001). Oligopoly Pricing. Cambridge: MIT Press.
WEISMAN, D. L. (2002). Did The High Court Reach An Economic Law in Verizon v. FCC?. Review of Network Economics, 1, pp. 90-105.
WEISMAN, D. L., (2000). The (In) Efficiency of the Efficient Firm Cost Standard. Antitrust Bulletin, 45, pp. 195-211.
WILLIG, R., (1979). The Theory of Network Access Pricing. in TREBING, H. M., ed, Issues in Utility Regulation. Michigan State University Public Utilities Papers.