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Killing the Goose That May Have Laid the Golden Egg?

Author

Listed:
  • Dieter Schmidtchen

    (Universität des Saarlandes)

  • Christoph Bier

    (Uni-Saarland - Center for the Study of Law and Economics)

Abstract

The purpose of the paper is (1) to analyze the potential and the incentives for a vertically integrated input monopolist to engage in price-discrimination when there is downstream entry, and (2) to examine the question, whether a cost-based regulation of access charges for electricity grids enhances competition in the downstream-market. The paper shows that the incumbent will never block entry if the entrant is more efficient than the incumbent. The reason is that the input-monopolist can make more profit through input sales than it could generate by producing the downstream product itself. If the entrant does not have a cost advantage either the incumbent or the entrant gets a monopoly position. Providing for a level playing field by means of a cost-based regulation of access charges always creates competition in the downstream-market. The paper also derives the welfare effects of both the liberalization of the downstream-market and the cost-based regulation.

Suggested Citation

  • Dieter Schmidtchen & Christoph Bier, "undated". "Killing the Goose That May Have Laid the Golden Egg?," German Working Papers in Law and Economics 2005-1-1123, Berkeley Electronic Press.
    • Handle: RePEc:bep:dewple:2005-1-1123
    Note: oai:bepress:
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    File URL: http://www.bepress.com/cgi/viewcontent.cgi?article=1123&context=gwp
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    References listed on IDEAS

    as
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    8. Mandy, David M, 2000. "Killing the Goose That May Have Laid the Golden Egg: Only the Data Know Whether Sabotage Pays," Journal of Regulatory Economics, Springer, vol. 17(2), pages 157-172, March.
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    More about this item

    Keywords

    discrimination; regulation; vertical integration; electricity; access charges; sabotage;
    All these keywords.

    JEL classification:

    • L - Industrial Organization
    • L - Industrial Organization
    • L - Industrial Organization

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