Reforming a Network Industry: Consequences for Cost Efficiency and Welfare

Johan Willner, Sonja Grönblom

Research output: Contribution to journalArticleScientificpeer-review

6 Citations (Scopus)

Abstract

To introduce competition in an industry with an upstream natural monopoly infrastructure requires vertical separation. However, given the well-known advantages of vertical integration, such a reform would have to reduce costs in order to increase social welfare. We ask whether this would be the case if marginal costs depend on a downstream agency problem. It turns out that the opposite holds true. While entry after vertical separation can be beneficial despite higher costs, the best solution in terms of cost efficiency and welfare tends to be a welfare-maximising vertically integrated or bilateral monopoly. Vertical separation and competition are outperformed even by a profit-maximising integrated monopoly.
Original languageUndefined/Unknown
Pages (from-to)265–284
JournalInternational Review of Applied Economics
Volume27
Issue number2
DOIs
Publication statusPublished - 2013
MoE publication typeA1 Journal article-refereed

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