Bottleneck Access with Structural Regulation and Endogenous Competition

25 Pages Posted: 4 Jun 2013

See all articles by Luciano G. Greco

Luciano G. Greco

University of Padua - Department of Economics

Fabio M. Manenti

University of Padua - Department of Economics and Management

Date Written: May 3, 2013

Abstract

In a simple model of network industry, where an upstream monopolis t provides an essential input for downstream service supply, we analyze the competitive settings arising in the downstream market under alternative regulatory frameworks; we combine structural (i.e. vertical integration, functional/ownershipseparation) and conduct (discriminatory and nondiscriminatory access) regulatory remedies. Downstream firms are characterized by different levels of cost effciency in the provision of the service. We show that the degree of heterogeneity in firms’ cost effciency is critical to the determination of the amount of competition that emerges in the downstream market, and of the effciency of the industry. We show that i) when downstream firms are significantly heterogenous, discriminatory access fees may be socially desirable and ii) vertical integration is always socially preferable.

Keywords: Vertical Integration, Functional Separation, Ownership Separation, Regulation, Discriminatory Access Fees

JEL Classification: L13, L22, L4

Suggested Citation

Greco, Luciano G. and Manenti, Fabio M., Bottleneck Access with Structural Regulation and Endogenous Competition (May 3, 2013). Available at SSRN: https://ssrn.com/abstract=2273675 or http://dx.doi.org/10.2139/ssrn.2273675

Luciano G. Greco

University of Padua - Department of Economics ( email )

via Del Santo 33
Padova, 35123
Italy

Fabio M. Manenti (Contact Author)

University of Padua - Department of Economics and Management ( email )

via Del Santo 33
Padova, 35123
Italy

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