Discussion paper

DP1122 Regulation and Access Pricing with Asymmetric Information

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.


De Fraja, G (1995), ‘DP1122 Regulation and Access Pricing with Asymmetric Information‘, CEPR Discussion Paper No. 1122. CEPR Press, Paris & London. https://cepr.org/publications/dp1122