The Theory of Access Pricing: An Overview for Infrastructure Regulators

35 Pages Posted: 20 Apr 2016

See all articles by Tommaso M. Valletti

Tommaso M. Valletti

Imperial College Business School; Centre for Economic Policy Research (CEPR)

Antonio Estache

Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES)

Date Written: March 1998

Abstract

Failure to properly design access rules is a key reason the potential gains from restructuring essential network facilities are not maximized or shared fairly between facility users and owners. This survey provides policymakers and regulators with an overview of relevant theory on access pricing, to solidly ground the practical debate.

An important component of policies to promote effective competition among all segments of network industries (such as electricity, telecommunications, or railways) is a regulatory environment guaranteeing that competitors have access to the services of potential bottleneck facilities too costly to duplicate. Rules covering fair access to these facilities-including fair access prices-generally improve economic efficiency by easing competition in markets both upstream and downstream from the bottleneck.

Appropriate access pricing rules are especially needed when a dominant firm controls the supply of one or more inputs-for example, gas transportation, electricity transmission, local telecommunications access, or railway track-vital for its competitors.

Access pricing is part of the antitrust concern central to the so-called essential facilities doctrine covered by U.S. legislation. It is also related broadly to such competition policy issues as quantity discounts, cross-subsidies, tie-ins, refusals to deal or unbundle, exclusive dealing, and predatory pricing.

Access pricing is one of the most important and controversial questions in regulating infrastructure services. This complexity stems partly from the practical fact that access rules can be discussed only with reference to the rest of the regulatory environment, since regulators have many goals and constraints.

In their survey of access pricing, Valletti and Estache try to make it clear that access rules should not be assigned too many expectations. There are a few things access prices already do, however, and should continue doing until an all-encompassing solution comes along.

Their survey covers access rules for both vertically unbundled and vertically integrated industries. It addresses the question: what happens if access is left unregulated? And it discusses the main challenges to implementation: calculating and allocating costs, finding a usage-based solution to the access pricing problem (the global price cap), and monitoring anticompetitive behavior (partial caps or adjusted global caps).

This paper - a product of the Governance, Regulation, and Finance Division, World Bank Institute - is part of a larger effort in the institute to disseminate best practice and best theory in the regulation of infrastructure. The authors may be contacted at t.valletti@lse.ac.uk or aestache@worldbank.org.

Suggested Citation

Valletti, Tommaso M. and Estache, Antonio, The Theory of Access Pricing: An Overview for Infrastructure Regulators (March 1998). World Bank Policy Research Working Paper No. 2097. Available at SSRN: https://ssrn.com/abstract=615025

Tommaso M. Valletti

Imperial College Business School ( email )

South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Antonio Estache (Contact Author)

Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES) ( email )

Ave. Franklin D Roosevelt, 50 - C.P. 114
Brussels, B-1050
Belgium
32 (0)2 6503838 (Phone)

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