Reforming a network industry: consequences for cost efficiency and welfare
Competition in an industry with an upstream natural monopoly infrastructure requires vertical separation. However, this cannot increase welfare unless marginal costs are reduced, given the advantages of vertical integration. It turns out that entry increases marginal costs and has ambiguous welfare effects if there is a downstream agency problem, and reduces marginal costs and increases welfare if it occurs upstream. While vertical separation and competition are outperformed even by a profit-maximising monopoly, a welfare-maximising vertically integrated monopoly yields, in both cases, superior cost efficiency and welfare.
Year of publication: |
2013
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Authors: | Willner, Johan ; Grönblom, Sonja |
Published in: |
International Review of Applied Economics. - Taylor & Francis Journals, ISSN 0269-2171. - Vol. 27.2013, 2, p. 265-284
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Publisher: |
Taylor & Francis Journals |
Saved in:
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