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Regulation of an Open Access Essential Facility

Author

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  • AXEL GAUTIER
  • MANIPUSHPAK MITRA
Abstract
A vertically integrated firm owns an essential input and operates on the downstream market. There is a potential entrant in the downstream market. Both firms use the same essential input. The regulator's objectives are (i) to ensure financing of the essential input and (ii) to generate competition in the downstream market. The regulatory mechanism grants non‐discriminatory access of the essential facility to the entrant provided it pays a two‐part tariff to the incumbent. The optimal mechanism generates inefficient entry. The inefficient entry captures the trade‐off between market efficiency and infrastructure financing resulting from incomplete information and non‐discriminatory access.

Suggested Citation

  • Axel Gautier & Manipushpak Mitra, 2008. "Regulation of an Open Access Essential Facility," Economica, London School of Economics and Political Science, vol. 75(300), pages 662-682, November.
    • Handle: RePEc:bla:econom:v:75:y:2008:i:300:p:662-682
    DOI: 10.1111/j.1468-0335.2007.00638.x
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    References listed on IDEAS

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    1. Caillaud, Bernard & Tirole, Jean, 2004. "Essential facility financing and market structure," Journal of Public Economics, Elsevier, vol. 88(3-4), pages 667-694, March.
    2. Laffont, Jean-Jacques & Tirole, Jean, 1994. "Access pricing and competition," European Economic Review, Elsevier, vol. 38(9), pages 1673-1710, December.
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    5. De Fraja, Gianni, 1999. "Regulation and access pricing with asymmetric information," European Economic Review, Elsevier, vol. 43(1), pages 109-134, January.
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    10. Lewis, Tracy R. & Sappington, David E. M., 1999. "Access pricing with unregulated downstream competition," Information Economics and Policy, Elsevier, vol. 11(1), pages 73-100, March.
    11. McAfee, R Preston & McMillan, John, 1987. "Auctions and Bidding," Journal of Economic Literature, American Economic Association, vol. 25(2), pages 699-738, June.
    12. Armstrong, Mark, 2001. "The theory of access pricing and interconnection," MPRA Paper 15608, University Library of Munich, Germany.
    13. Campos, Javier & Cantos, Pedro, 1999. "Regulating privatized rail transport," Policy Research Working Paper Series 2064, The World Bank.
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    Citations

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    Cited by:

    1. Wissner, Matthias, 2014. "Regulation of district-heating systems," Utilities Policy, Elsevier, vol. 31(C), pages 63-73.
    2. Kaniska Dam & Axel Gautier & Manipushpak Mitra, 2007. "Efficient Access Pricing and Endogenous Market Structure," Working Papers DTE 384, CIDE, División de Economía.
    3. Bloch Francis & Gautier Axel, 2008. "Access Pricing and Entry in the Postal Sector," Review of Network Economics, De Gruyter, vol. 7(2), pages 1-24, June.
    4. Toshihiro Matsumura & Noriaki Matsushima, 2009. "Access Charge, Vertical Separation, and Lobbying," Discussion Papers 2009-11, Kobe University, Graduate School of Business Administration.
    5. GAUTIER, Axel, 2005. "Network financing with two-part and single tariff," LIDAM Discussion Papers CORE 2005034, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    6. Wissner, Matthias, 2013. "Regulierungsbedürftigkeit des Fernwärmesektors," WIK Discussion Papers 381, WIK Wissenschaftliches Institut für Infrastruktur und Kommunikationsdienste GmbH.
    7. Seok Yang & Myeonghwan Cho, 2024. "Pricing Third-Party Access to Essential Facilities under Asymmetric Information," Korean Economic Review, Korean Economic Association, vol. 40, pages 315-348.
    8. Toshihiro Matsumura & Noriaki Matsushima, 2012. "Regulated Input Price, Vertical Separation, and Leadership in Free Entry Markets," ISER Discussion Paper 0853, Institute of Social and Economic Research, Osaka University.

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    More about this item

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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