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Endogenous average cost based access pricing

Fjell, Kenneth; Foros, Øystein; Pal, Debashis
Working paper
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URI
http://hdl.handle.net/11250/163074
Date
2006-10
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  • Discussion papers (SAM) [608]
Abstract
We consider an industry where a downstream competitor requires

access to an upstream facility controlled by a vertically integrated and regulated

incumbent. The literature on access pricing assumes the access price to be exogenously

fixed ex-ante. We analyze an endogenous average cost based access

pricing rule, where both firms realize the interdependence among their quantities

and the regulated access price. Endogenous access pricing neutralizes the artificial

cost advantage enjoyed by the incumbent firm and results in equal or higher consumer

surplus. If the entrant is more efficient than the incumbent, then the welfare under endogenous access pricing is also higher.
Publisher
Norwegian School of Economics and Business Administration. Department of Economics
Series
Discussion paper
2006:31

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