Efficient Access Pricing and Endogenous Market Structure

CORE Discussion Paper No. 2007/4

20 Pages Posted: 22 Mar 2007

See all articles by Kaniska Dam

Kaniska Dam

Catholic University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE)

Axel Gautier

University of Liège - Research Center on Public and Population Economics; Catholic University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE)

Manipushpak Mitra

University of Bonn - Institute of Economic Theory I

Date Written: January 2007

Abstract

We analyse a (differentiated good) industry where an incumbent firm owns a network good (essential input) and faces potential competition in the (downstream) retail market. Unlike the traditional approach, we consider a scenario where the decision to compete or not in the downstream segment is endogenous, and this decision depends on the particular mechanism designed by the utilitarian regulator. We assume that the technology of the potential entrant is private information. We derive the efficient (Ramsey) prices and access charge taking the impact of a non-discriminatory mechanism on entry decision into account. We assert that the optimal pricing formula must include a Ramsey term that is inversely related to the "modified" superelasticty of the retail good under consideration. We further show, under unknown cost, that there might be "excess" or "too little" entry compared to the socially optimal level.

Keywords: Non-discriminatory access, endogenous competition, modified superelasticity

JEL Classification: L11, L51, D82

Suggested Citation

Dam, Kaniska and Gautier, Axel and Mitra, Manipushpak, Efficient Access Pricing and Endogenous Market Structure (January 2007). CORE Discussion Paper No. 2007/4, Available at SSRN: https://ssrn.com/abstract=975074 or http://dx.doi.org/10.2139/ssrn.975074

Kaniska Dam (Contact Author)

Catholic University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE) ( email )

34 Voie du Roman Pays
B-1348 Louvain-la-Neuve, b-1348
Belgium

Axel Gautier

University of Liège - Research Center on Public and Population Economics ( email )

Boulevard du Rectorat, 7, Batiment 31
Sart-Tilman
B-4000 Liege, 4000
Belgium

Catholic University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE) ( email )

34 Voie du Roman Pays
B-1348 Louvain-la-Neuve, b-1348
Belgium
+32-10-47.43.01 (Fax)

Manipushpak Mitra

University of Bonn - Institute of Economic Theory I ( email )

Adenauerallee 24-26
D-53113 Bonn
Germany

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