Search

A postal regulator typically faces two issues which make the design of efficient access pricing especially difficult and which complicate the process of liberalizing the industry. First, universal service obligations, together with the presence of fixed costs, require retail prices to depart from the underlying marginal costs of the incumbent provider. Second, competing firms may be able to bypass the incumbent's delivery network. Within a simple and stylized framework, this note analyzes how access charges should best be set in the light of these twin constraints. [ABSTRACT FROM AUTHOR]

We model firms as supplying utility directly to consumers. The equilibrium outcome of competition in utility space depends on the relationship π (u) between profit and average utility per consumer. Public policy constraints on the ‘deals’ firms may offer affect equilibrium outcomes via their effect on π(u). From this perspective we examine the profit, utility, and welfare implications of price discrimination policies in an oligopolistic framework. We also show that an equilibrium outcome of competitive nonlinear pricing when consumers have private information about their tastes is for firms to offer efficient two-part tariffs. [ABSTRACT FROM AUTHOR]

The article focuses on the pricing discretion that should be granted to a regulated multi-product firm with market power. In Britain, the largest telecommunications firm, British Telecom PLC, is allowed some discretion over its retail tariff but subsidiary constraints are imposed on individual prices. Within this overall cap, though, subsidiary constraints include requirements like the prices be uniform across the country, prices do not fall below some floor and the quarterly line rental charge may not rise above a specified cap. There are several reasons for this mixed policy, and it is discussed under four broad headings namely Non-Economic reasons, Regulatory Burden, Interactions with Competition and Asymmetric Informations. Optimal design of the price cap, the set of permitted price vectors for a regulated multi-product monopoly is discussed in detail while discussing Asymmetric Informations. Prices and the degree of pricing discretion as the sole instrument of policy are considered. This assumption is restrictive in two ways namely no use is made of lump-sum transfers, even though within the terms of the models discussed such transfers are welfare enhancing, and no use is made of the realized demands of consumers.

Should a multiproduct monopolist whose ‘average price’ is capped by regulation be allowed to engage in (third-degree) price discrimination? If the cap applies to a price index with weights proportional to demands at uniform prices, then price discrimination benefits consumers as well as the firm. But if—perhaps more realistically—it is the firm's average revenue that is capped, then consumers prefer uniform pricing. In this case total output is higher when discrimination is allowed, which increases welfare, but marginal utilities differ across markets, which is inefficient, and the overall effect is ambiguous. A small amount of discrimination is desirable, however. It is better not to allow price discrimination if the price cap is close to the level of marginal cost. The consequences of tightening the price cap when discrimination is allowed are also examined. [ABSTRACT FROM AUTHOR]

This paper discusses industries such as telecommunications where firms each have their own customers and must interconnect with other firms to provide a comprehensive service. Two scenarios are considered: (i) the case of a symmetric, unregulated industry and (ii) the case of an industry with a dominant, regulated incumbent. In the first, provided there is sufficient product differentiation, it is shown that firm agree to set interconnection charges above associated costs in order to obtain the joint profit-maximizing outcome. In the second a formula for the welfare-maximizing interconnection charge is derived. Relations with the 'efficient component pricing rule' are discussed. [ABSTRACT FROM AUTHOR]

Typically, work on mechanism design has assumed that all private information can be captured in a single scalar variable. This paper explores one way in which this assumption can be relaxed in the context of the multiproduct nonlinear pricing problem. It is shown that the firm will choose to exclude some low value consumers from all markets. A class of cases that allow explicit solution is derived by making use of a multivariate form of "integration by parts." In such cases the optimal tariff is cost-based. [ABSTRACT FROM AUTHOR]

The Baumol-Willig efficient component pricing rule states that it is efficient to set the price of access to an essential facility equal to the direct cost of access plus the opportunity cost to the integrated access provider. We analyze the relevant notion of `opportunity cost' under various assumptions about demand and supply conditions, including product differentiation, bypass and substitution possibilities, which all reduce opportunity cost compared to the benchmark case. We show that the Ramsey approach to access pricing developed by Laffont and Tirole [1994] is closely related to the ECPR provided opportunity cost is correctly interpreted. [ABSTRACT FROM AUTHOR]

The paper analyzes some effects of price discrimination policy in a model where a dominant incumbent firm faces an endogenous degree of competition in one of its two markets. Banning price discrimination tends to encourage more entry, which is desirable if the entrant is as efficient as the incumbent but has ambiguous welfare effects more generally. Prices in both markets might fall. Price discrimination policy under different forms of price regulation is also examined. If the incumbent's average price level is regulated, then allowing price discrimination can lead to pricing below marginal cost, with possible anti-competitive consequences. [ABSTRACT FROM AUTHOR]