473. Optimal Access Regulation with Downstream Competition

Flavio Menezes, John Quiggin and Tina Kao, School of Economics Discussion Paper No. 473 December 2012, School of Economics, The University of Queensland. Australia.

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Abstract

We analyze the setting of access prices for a bottleneck facility where the facility owner also competes in the deregulated downstream market. We consider a continuum of market structures from Cournot to Bertrand. These market structures are fully characterized by a single parameter representing the intensity of competition. We first show how the efficient component pricing rule (ECPR) should be modified as the downstream competitive intensity changes. We then analyse the optimal access price where a regulator trades off production efficiency and pro-competitive effects to maximize total surplus.