Access Pricing Under Imperfect Competition Reconsidered

Issue: 2012/4

Michal Kvasnička

Masaryk University, Economic Faculty, Lipová 41a, Brno, 602 00, the Czech Republic, michal.kvasnicka@econ.muni.cz

Rostislav Staněk

Masaryk University, Economic Faculty, Lipová 41a, Brno, 602 00, the Czech Republic, rostanek@mail.muni.cz

This paper claims that Onemli’s results published in “Access Pricing under Imperfect Competition”, Review of Economic Perspectives, 2012, are incorrect. Contrary to Onemli, we claim that in an industry, where a monopoly incumbent produces a key input used by itself and its competitors on a downstream market which is Cournot oligopoly, the regulator should set the second-best access charge such that the incumbent’s total profit is zero if the first-best access charge is not feasible. The competitors’ ability to produce the key input themselves does not change the outcome since no competitor chooses to use this option under this regulation. We also discuss some limitations of the Onemli’s model.

Pages: 
223-234
DOI: 10.2478/v10135-012-0012-8
JEL: L97, L51, L19
Keywords: Cournot oligopoly, monopoly, second-best optimal access charge, Regulation
References: 

 

AMIR, R.—LAMBSONV. E. (2000). On the Effects of Entry in Cournot Markets. Review of Economic Studies, 67(2), Pp. 235–254.

DIXIT, A. (1986). Comparative Statics for Oligopoly. International economic review, 27(1), Pp. 107–112.

EGGERTSSON, T. (1990). Economic behavior and institutions, Cambridge: Cambridge University Press.

ONEMLI, M. B. (2012). Access Pricing Under Imperfect Competition”, Review of Economic Perspectives. 12(1). Pp. 3–21.

SPENCER, B. J.—BRANDER, J. A. (1983). Second Best Pricing of Publicly Produced Inputs.  Journal of Public Economics. 20(1), Pp. 113–119.

TIROLE, J. (1988). Theory of Industrial Organization. Cambridge, Massachusetts: The MIT Press.

VICKERS, J. (1995). Competition and Regulation in Vertically Related Markets. Review of Economic Studies. 62(1). Pp. 1–17.

VIVES, X. (1999). Oligopoly Pricing. Cambridge, Massachusetts: The MIT Press.