Infrastructure Quality in Deregulated Industries: Is There an Underinvestment Problem?

Posted: 11 Dec 2004

See all articles by Stefan Buehler

Stefan Buehler

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

Armin Schmutzler

University of Zurich - Department of Economics; Centre for Economic Policy Research (CEPR)

Men-Andri Benz

University of Zurich - Department of Business Administration (IBW)

Abstract

We investigate how various institutional settings affect a network provider's incentives to invest in infrastructure quality. Under reasonable assumptions on demand, investment incentives turn out to be smaller under vertical separation than under vertical integration, though we also provide counterexamples. The introduction of downstream competition for the market can sometimes improve incentives. With suitable non-linear access prices investment incentives under separation become identical to those under integration.

Keywords: Investment incentives, networks, quality, railways, vertical externality

JEL Classification: D42, L22, L43, L92

Suggested Citation

Buehler, Stefan and Schmutzler, Armin and Benz, Men-Andri, Infrastructure Quality in Deregulated Industries: Is There an Underinvestment Problem?. International Journal of Industrial Organization, Vol. 22, pp. 253-267, 2004, Available at SSRN: https://ssrn.com/abstract=630405

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)

Armin Schmutzler

University of Zurich - Department of Economics ( email )

Z├╝rich, CH-8006
Switzerland

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Men-Andri Benz

University of Zurich - Department of Business Administration (IBW) ( email )

Hottingerstrasse 10
Plattenstrasse 14
Zurich 8032, 8032
Switzerland

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