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Tendering Universal Service Obligations in Liberalized Network Industries

Author

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  • Christian Jaag
  • Urs Trinkner

Abstract

In the past decades, several countries have introduced reverse auctions for allocating universal service or public mission subsidies in various industries. Examples include urban transport, air transport and telecommunications. Recently, such mechanisms have also been envisioned in liberalized postal markets. Issuing an invitation to tender for obligations in otherwise liberalized markets significantly differs from auctioning off a monopolistic provision of services or goods (competition for the market), as is e.g. the case with spectrum auctions in the telecommunications sector. We discuss the rationale for introducing such a regulatory regime as well as conceptual and practical issues concerning its implementation. It turns out that designing an efficient tender for universal service subsidies in liberalized markets is considerably more difficult than tendering e.g. a monopoly franchise. A first reason is that the cost assessment is more complex in the former case as future competitive market outcomes have to be anticipated; in the case with franchise bidding, at least the number of competitors is given by the tender itself. Hence, revenue effects caused by competitors are easier to calculate. Second, the threat of a winner?s moral hazard requires more detailed ex ante regulations. These raise the social cost of universal service provision. Compared to direct designation of universal services with ex post compensation, tendering causes a series of fundamental concerns and trade-offs that make the application of auctions less attractive than in other sectors.

Suggested Citation

  • Christian Jaag & Urs Trinkner, 2008. "Tendering Universal Service Obligations in Liberalized Network Industries," Working Papers 0013, Swiss Economics, revised Jan 2009.
  • Handle: RePEc:chc:wpaper:0013
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    Cited by:

    1. Jaag Christian, 2011. "Entry Deterrence and the Calculation of the Net Cost of Universal Service Obligations," Review of Network Economics, De Gruyter, vol. 10(1), pages 1-19, March.
    2. Urs Trinkner & Martin Lutzenberger, 2019. "Weiterentwicklung der institutionellen Ausgestaltung im Bahnmarkt," Working Papers 0065, Swiss Economics.
    3. Joan Calzada & Christian Jaag & Urs Trinkner, 2010. "Universal service auctions in liberalized postal markets," Chapters, in: Michael A. Crew & Paul R. Kleindorfer (ed.), Heightening Competition in the Postal and Delivery Sector, chapter 17, Edward Elgar Publishing.
    4. Christian Jaag & Martin Koller & Urs Trinkner, 2009. "Calculating the Cost of the Universal Service Obligation: The Need for a Global Approach," Chapters, in: Michael A. Crew & Paul R. Kleindorfer (ed.), Progress in the Competitive Agenda in the Postal and Delivery Sector, chapter 8, Edward Elgar Publishing.
    5. Carlos Costa, 2012. "On the Use of Reverse Auctions to Designate Universal Postal Service Providers," Chapters, in: Michael A. Crew & Paul R. Kleindorfer (ed.), Multi-Modal Competition and the Future of Mail, chapter 21, Edward Elgar Publishing.
    6. Christian Jaag & Martin Maegli, 2015. "Market Regulations and USO in the Revised Swiss Postal Act: Provisions and Authorities," Topics in Regulatory Economics and Policy, in: Michael A. Crew & Timothy J. Brennan (ed.), Postal and Delivery Innovation in the Digital Economy, edition 127, pages 301-311, Springer.
    7. Matthias Finger & Christian Jaag & Markus Lang & Martin Lutzenberger & Urs Trinkner, 2009. "Bestimmung des Regulierungsbedarfs aus ökonomischer Sicht: Angemessenheit und Folgen einer funktionalen oder strukturellen Trennung von Swisscom," Studies and Reports, Swiss Economics, pages 1-92, February.
    8. Helmut M. Dietl & Urs Trinkner, 2008. "Developing Universal Postal Services in Latin America ? an Economic Perspective," Working Papers 0012, Swiss Economics, revised Nov 2008.

    More about this item

    Keywords

    Procurement; Tendering; Reverse Auctions; Universal Service Obligation; Liberalization; Network Industries;
    All these keywords.

    JEL classification:

    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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