Who Gains from Universal Service Obligations? A Welfare Analysis of the Rule "One Price for Everywhere"

Who Gains from Universal Service Obligations? A Welfare Analysis of the Rule ?One Price for Everywhere? (di Alberto Iozzi) - ABSTRACT: This paper provides an analysis of the welfare effects of imposing the provision of a universal service at a uniform price on regulated network utilities. The vehicle of the analysis is a duopoly model where firms compete in a spatial market and where pric-ing constraints are imposed only on one of the firms. The structure of the model cap-tures the imperfectly competitive features of the markets where uniform pricing con-straints are imposed and the asymmetric nature of the regulatory framework typical of these industries. The main results are the following: i) the introduction of uniform pricing constraints may reduce the aggregate social welfare with respect to the totally unregulated market; ii) there are conditions under which the unregulated market not only gives a higher aggregate welfare but also ensures that all the consumers have ac-cess to the good, and iii) unless the regulatory arrangements also include a constraint on the price level, the unregulated market may provide to consumers distantly located from the firms a level of welfare higher than when universal service obligations are imposed.