Vertical Relationship and Regulation: The Case of Essential Facility

Revue Economique, Vol. 52, No. 3, pp. 655-664, May 2001

10 Pages Posted: 9 Nov 2004

See all articles by François Boldron

François Boldron

University of Toulouse 1 - Groupe de Recherche en Economie Mathématique et Quantitative (GREMAQ)

Cyril Hariton

Toulouse Business School

Abstract

This paper studies the strategy of an upstream monopoly which sells an essential facility to a downstream regulated firm by means of two-part tariff, in a regulatory environment a la Ramsey-Boiteux with a unique budget constraint over all the regulated activities. It is shown that the upstream monopoly obtains greater profits when there is regulation than when there is not, i.e. when the upstream monopoly deals directly with the downstream firm. Therefore, if it has this opportunity, the regulator chooses not to regulate the downstream firm in order to limit this rent extraction.

Keywords: Monopole, Régulation, Relations verticales, Tarif binôme

JEL Classification: D82, L12, L51

Suggested Citation

Boldron, François and Hariton, Cyril, Vertical Relationship and Regulation: The Case of Essential Facility. Revue Economique, Vol. 52, No. 3, pp. 655-664, May 2001, Available at SSRN: https://ssrn.com/abstract=616106

François Boldron

University of Toulouse 1 - Groupe de Recherche en Economie Mathématique et Quantitative (GREMAQ) ( email )

Manufacture des Tabacs
21 Allees de Brienne
Toulouse, 31000
France

Cyril Hariton (Contact Author)

Toulouse Business School ( email )

20, bd Lascrosses - BP 7010
Toulouse Cedex 7, 31068
France