Access charge and imperfect competition

Abstract

SummaryA benevolent social planner, which faces a cost of public funds because of distortive taxation, wants to finance an upstream monopoly. This monopoly produces a necessary input for a downstream competitive sector which competes á la Cournot (with either a fixed number of firms or free entry in the downstream sector). We show that in both cases an ad valorem access charge is a better regulatory tool than a per unit access charge if the access charges are restrained to be positive. The reverse holds when access charges are used to subsidize the downstream market. We then analyze the incidence of the imperfect competition on final prices.