CORE Discussion Paper No. 2003/84
24 Pages Posted: 23 Apr 2007
Date Written: November 2003
In this paper we consider the problem of regulating an open access essential facility. A vertically integrated firm owns an essential input and operates on the downstream market under the roof of a regulatory mechanism. There is a potential entrant in the downstream market. Both competitors use the same essential input to provide the final services to the consumers. The regulator designs a mechanism that guarantees financing of the essential input and adequate competition in the downstream market. We consider a regulatory mechanism that grants non-discriminatory access of the essential facility to a competitor. We show that this mechanism is welfare improving but it generates inefficient entry. That is a more efficient competitor may stay out of the market or a less efficient competitor may enter the market.
Keywords: regulation, railways, network, entry, competition, access charge, asymmetric information
JEL Classification: D82, H54, L11, L51
Suggested Citation: Suggested Citation