Imperfect legal unbundling of monopolistic bottlenecks

Höffler, Felix; Kranz, Sebastian

doi:10.1007/s11149-011-9144-5

Cited by 35 publications

(12 citation statements)

References 14 publications

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“…Therefore, chances for discrimination among different markets need to be taken into account when implementing regulation regimes. Furthermore, recent studies show that non-price discrimination (for example Höffler and Kranz, 2011) could be also an issue that does not only affect rivals' costs but also raises the switching costs for customers, e.g. by delaying the switching process.…”

Section: Discussionmentioning

confidence: 99%

Strategic Pricing, Market Entry and Competition: Evidence from German Electricity Submarkets

Nikogosian

Veith

2011

SSRN Journal

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Die Dis cus si on Pape rs die nen einer mög lichst schnel len Ver brei tung von neue ren For schungs arbei ten des ZEW. Die Bei trä ge lie gen in allei ni ger Ver ant wor tung der Auto ren und stel len nicht not wen di ger wei se die Mei nung des ZEW dar.Dis cus si on Papers are inten ded to make results of ZEW research prompt ly avai la ble to other eco no mists in order to encou ra ge dis cus si on and sug gesti ons for revi si ons. The aut hors are sole ly respon si ble for the con tents which do not neces sa ri ly repre sent the opi ni on of the ZEW.Download this ZEW Discussion Paper from our ftp server:http://ftp.zew.de/pub/zew-docs/dp/dp11068.pdf Non-technical SummaryGerman electricity submarkets for residential customers have been liberalized by the end of the 1990s. Since then a large number of new providers has entered former monopolistic markets, which are first and foremost retail markets. However, only a low share of households in Germany has switched to a competitive contract. Following the Monitoringbericht 2008 of the German energy regulator Bundesnetzagentur about 60 percent of households have not switched to an alternative contract, even ten years after the liberalization. These households are served with incumbents' standard contracts, the so-called "Grundversorgungsverträge". Usually, standard contracts are offered at significantly higher prices than competitive contracts due to high customers' switching costs. In this paper we follow the question how the standard contract price or the price-cost markup for this contract could be used to influence market structure.Following the Limit Pricing theory, we show that retail competition in terms of the number of competitors depends on the standard contract price and that the provider of this contract type might use the price as an instrument to affect competition in its home market ceteris paribus. By reducing the standard contract price customers' net benefits of switching to an alternative contract could be reduced. Thus, market entry might be not profitable for less efficient supplier. We would then expect a lower number of electricity suppliers in markets with lower standard contract prices. Whether the low-price strategy is profit-increasing for the incumbent depends on the behavior of the customers: With a lower standard contract price also the price-cost markup is lower. On the other hand, lower numbers of customers are willing to switch to competitive contracts.We analyze the limit pricing idea using a simultaneous equations approach and employ data for all geographically separated German retail electricity submarkets. We control for alternative regional impact characteristics such as customer concentration, purchasing power, grid characteristics as well as the distribution charge, which providers have to pay for electricity provision in a market.Our estimation results show a significant effect of the standard contract price (or price-cost markup) on the number of offered contracts and number of the competitors offering contracts to low cons...

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Section: Discussionmentioning

confidence: 99%

Strategic Pricing, Market Entry and Competition: Evidence from German Electricity Submarkets

Nikogosian

Veith

2011

SSRN Journal

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“…Höffler and Kranz (, ) investigate how to restructure former integrated network monopolists. They find that passive ownership of the upstream bottleneck (legal unbundling) may be optimal in terms of downstream prices, upstream investment incentives, and prevention of foreclosure.…”

Section: Literaturementioning

confidence: 99%

Passive vertical integration and strategic delegation

Hunold

Stahl

2016

The RAND J of Economics

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With backward acquisitions in their efficient supplier, downstream firms profitably internalize the effects of their actions on their rivals' sales, while upstream competition is also relaxed. Downstream prices increase with passive, yet decrease with controlling acquisition. Passive acquisition is profitable when controlling acquisition is not. Downstream acquirers strategically abstain from vertical control, thus delegating commitment to the supplier, and with it high input prices, allowing them to charge high downstream prices. The effects of passive backward acquisition are reinforced with the acquisition by several downstream firms in the efficient supplier. The results are sustained when suppliers charge two‐part tariffs.

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“…They find that ownership separation yields higher total output and welfare. A different result is obtained in Höffler and Kranz (2011a). The authors analyze a context with access regulation but where the regulator cannot prevent the incumbent from hindering downstream firms in some other ways (i.e.…”

Section: Introductionmentioning

confidence: 96%