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: www.cepr.org/pubs/dps/DP1122.asp

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.