Deregulating Network Industries: Dealing with Price-Quality Tradeoffs

Journal of Regulatory Economics 30(1), 2006, 99-115

24 Pages Posted: 15 Mar 2004 Last revised: 25 Mar 2020

See all articles by Stefan Buehler

Stefan Buehler

University of St. Gallen - SEPS: Economics and Political Sciences

Dennis L. Gärtner

University of St. Gallen

Daniel Halbheer

HEC Paris - Marketing

Date Written: July 20, 2005

Abstract

This paper examines the effects of introducing competition into monopolized network industries on prices and infrastructure quality. Analyzing a model with reduced-form demand, we first show that deregulating an integrated monopoly cannot simultaneously decrease the retail price and increase infrastructure quality. Second, we derive conditions under which reducing both retail price and infrastructure quality relative to the integrated monopoly outcome increases welfare. Third, we argue that restructuring and setting very low access charges may yield welfare losses, as infrastructure investment is undermined. We provide an extensive analysis of the linear demand model and discuss policy implications.

Keywords: infrastructure quality, deregulation, investment incentives, access charges, regulation.

JEL Classification: D43, L43

Suggested Citation

Buehler, Stefan and Gärtner, Dennis L. and Halbheer, Daniel, Deregulating Network Industries: Dealing with Price-Quality Tradeoffs (July 20, 2005). Journal of Regulatory Economics 30(1), 2006, 99-115, Available at SSRN: https://ssrn.com/abstract=516322 or http://dx.doi.org/10.2139/ssrn.516322

Stefan Buehler (Contact Author)

University of St. Gallen - SEPS: Economics and Political Sciences ( email )

FGN-HSG
Varnbuelstr. 19
CH-9000 St. Gallen
Switzerland
+41-71-224-2303 (Phone)

Dennis L. Gärtner

University of St. Gallen ( email )

Bodanstrasse 6
St Gallen, 9000
Switzerland

Daniel Halbheer

HEC Paris - Marketing ( email )

Paris
France

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