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Deregulating network industries: dealing with price-quality tradeoffs


Buehler, S; Gärtner, D; Halbheer, D (2006). Deregulating network industries: dealing with price-quality tradeoffs. Journal of Regulatory Economics, 30(1):99-115.

Abstract

This paper examines the effects of introducing competition into monopolized network industries on prices and infrastructure quality. Analyzing a model with reduced-form demand, we first show that deregulating an integrated monopoly cannot simultaneously decrease the retail price and increase infrastructure quality. Second, we derive conditions under which reducing both retail price and infrastructure quality relative to the integrated monopoly outcome increases welfare. Third, we argue that restructuring and setting very low access charges may yield welfare losses, as infrastructure investment is undermined. We provide an extensive analysis of the linear demand model and discuss policy implications.

Abstract

This paper examines the effects of introducing competition into monopolized network industries on prices and infrastructure quality. Analyzing a model with reduced-form demand, we first show that deregulating an integrated monopoly cannot simultaneously decrease the retail price and increase infrastructure quality. Second, we derive conditions under which reducing both retail price and infrastructure quality relative to the integrated monopoly outcome increases welfare. Third, we argue that restructuring and setting very low access charges may yield welfare losses, as infrastructure investment is undermined. We provide an extensive analysis of the linear demand model and discuss policy implications.

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Additional indexing

Item Type:Journal Article, refereed
Communities & Collections:03 Faculty of Economics > Department of Economics
Dewey Decimal Classification:330 Economics
Language:English
Date:1 June 2006
Deposited On:11 Feb 2008 12:21
Last Modified:05 Apr 2016 12:17
Publisher:Springer
ISSN:0922-680X
Additional Information:The original publication is available at www.springerlink.com.
Publisher DOI:https://doi.org/10.1007/s11149-006-0011-8

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