Organisational Structures in Network Industries – An Application to the Railway Industry

Benjamin Pakula () and Georg Götz
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Benjamin Pakula: University of Giessen

No 201109, MAGKS Papers on Economics from Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung)

Abstract: This paper analyses the incentives to upgrade input quality in vertically related (network) industries. Upstream investments have a biased effect on the downstream companies and lead to vertical product differentiation. Different vertical structures such as vertical integration, ownership and legal unbundling lead to different investments. We find that, without regulation, vertical integration and legal unbundling regimes provide highest investment incentives and lead to highest welfare. However, we also find foreclosure in the downstream market if the potential degree of horizontal product differentiation of the entrant is low. Under ownership unbundling, investment incentives are lower but there is never foreclosure of the entrant since this would worsen double marginalisation. When the network operator is subject to a break-even regulation, the investment incentives are crowded out under legal and ownership unbundling whereas they remain nearly unchanged under vertical integration. Welfare and co umer surplus decrease under legal unbundling, but increase under the two other regimes.

Keywords: Vertical Integration; Investment; Foreclosure; Regulation (search for similar items in EconPapers)
JEL-codes: D2 D4 L43 L51 L92 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2011
New Economics Papers: this item is included in nep-com, nep-net and nep-reg
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Persistent link: https://EconPapers.repec.org/RePEc:mar:magkse:201109

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