<abstract xml:lang="en" xmlns="http://www.w3.org/1999/xhtml"><p>The study investigates optimal access charges when the downstream markets are imperfectly competitive. Optimal access charges have been examined in the literature mainly under the condition where only the incumbent has market power. However, network industries tend to exhibit an oligopolistic market structure. Therefore, the optimal access charge under imperfect competition is an important consideration when regulators determine access charges. This essay investigates some general principles for setting optimal access charges when downstream markets are imperfectly competitive. One of the primary objectives of this essay is to show the importance of the break-even constraint when first-best access charges are not feasible. Specifically, we show that when the first-best access charges are not feasible, the imposition of the break-even constraint on only the upstream profit of the incumbent is superior to the case where break-even constraint applies to overall incumbent profit, where the latter is the most commonly used constraint in the access pricing literature. Bypass and its implications for optimal access charges and welfare are also explored.</p></abstract>

The study investigates optimal access charges when the downstream markets are imperfectly competitive. Optimal access charges have been examined in the literature mainly under the condition where only the incumbent has market power. However, network industries tend to exhibit an oligopolistic market structure. Therefore, the optimal access charge under imperfect competition is an important consideration when regulators determine access charges. This essay investigates some general principles for setting optimal access charges when downstream markets are imperfectly competitive. One of the primary objectives of this essay is to show the importance of the break-even constraint when first-best access charges are not feasible. Specifically, we show that when the first-best access charges are not feasible, the imposition of the break-even constraint on only the upstream profit of the incumbent is superior to the case where break-even constraint applies to overall incumbent profit, where the latter is the most commonly used constraint in the access pricing literature. Bypass and its implications for optimal access charges and welfare are also explored.

Access Pricing Under Imperfect Competition

Department of Statistics, Kansas State University, Dickens Hall Manhattan, KS, 66506, USA

Review of Economic Perspectives

{"article-title":"Access Pricing Under Imperfect Competition"}

The study investigates optimal access charges when the downstream markets are imperfectly competitive. Optimal access charges have been examined in the...

Access Pricing Under Imperfect Competition

Published Online: Apr 06, 2012

Page range: 22 - 41

DOI: https://doi.org/10.2478/v10135-012-0002-x

Keywords
Optimal Access Charges, Non-negativity Constraint, Regulation

This content is open access.

Access Pricing Under Imperfect Competition

Published Online: Apr 06, 2012

Page range: 22 - 41

DOI: https://doi.org/10.2478/v10135-012-0002-x

KeywordsOptimal Access Charges, Non-negativity Constraint, Regulation

This content is open access.

Keywords
Optimal Access Charges, Non-negativity Constraint, Regulation