DP1122 Regulation and Access Pricing with Asymmetric Information

Author(s):	Gianni De Fraja
Publication Date:	January 1995
Keyword(s):	Access, Competition in Regulated Markets, Network, Regulation
JEL(s):	L51
Programme Areas:	Industrial Organization
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=1122

We study in this paper whether the price charged to a competitor for the use of an essential input produced in conditions of natural monopoly should reflect only considerations of relative efficiency between the various potential suppliers. In a model that captures the technological conditions operating in industries such as telephony, gas, rail, where access to a distribution network is essential to the ability to compete, we show that this is not the case. Instead, the access price should be set `pro-competitively': it may be socially optimal to award production to a firm less efficient than the owner of the network.