Deregulating Network Industries: Dealing with Price-quality Tradeoffs |
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Authors: | Stefan Buehler Dennis Gärtner Daniel Halbheer |
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Institution: | (1) Socioeconomic Institute, University of Zurich, Blümlisalpstrasse 10, 8006 Zurich, Switzerland;(2) Research Institute for Empirical Economics and Economic Policy, University of St. Gallen, Varnbüelstrasse 14, 9000 St. Gallen, Switzerland |
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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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Keywords: | Infrastructure quality Deregulation Investment incentives Access charges Regulation |
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