IDEAS home Printed from https://ideas.repec.org/p/crs/wpaper/2003-43.html
   My bibliography  Save this paper

Skimming the Others' Cream Competitive Effects of an Asymmetric Universal Service Obligation

Author

Listed:
  • Hélène Bourguignon

    (Crest)

  • Jorge Andrés Ferrando Yanez

    (Crest)

Abstract

In a competitive environment, universal service obligations (USOs) appear as constraintsimposed on firm behaviour, and are often presented as a burden to the concerned firms.However, we show that USOs might benefit firms by acting as first mover advantages for theincumbent. We build a simple model of two-part tariff competition between two firms, one ofwhich provides an ‘essential' good and is subject to a USO requiring ubiquity and uniformpricing, while the other is subject to uniform pricing only, a situation common in energymarkets. Surprisingly, the geographic component of the USO incites the incumbent to pricemore aggressively and induces reduced entry, even though the entrant is able to "creamskim" the market. We interpret this result as partial appropriation by the incumbent of thesurplus brought to the economy by the entrant, and study the conditions under which thestrategies at hand might be put to work.

Suggested Citation

  • Hélène Bourguignon & Jorge Andrés Ferrando Yanez, 2003. "Skimming the Others' Cream Competitive Effects of an Asymmetric Universal Service Obligation," Working Papers 2003-43, Center for Research in Economics and Statistics.
    • Handle: RePEc:crs:wpaper:2003-43
    as

    Download full text from publisher

    File URL: http://crest.science/RePEc/wpstorage/2003-43.pdf
    File Function: Crest working paper version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Armstrong, Mark & Vickers, John, 1993. "Price Discrimination, Competition and Regulation," Journal of Industrial Economics, Wiley Blackwell, vol. 41(4), pages 335-359, December.
    2. Gasmi, F. & Laffont, J. J. & Sharkey, W. W., 2000. "Competition, universal service and telecommunications policy in developing countries," Information Economics and Policy, Elsevier, vol. 12(3), pages 221-248, September.
    3. W. Leontief, 1940. "The Theory of Limited and Unlimited Discrimination," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 54(3), pages 490-501.
    4. Dessein, Wouter, 2003. "Network Competition in Nonlinear Pricing," RAND Journal of Economics, The RAND Corporation, vol. 34(4), pages 593-611, Winter.
    5. Patrick J. DeGraba, 1987. "The Effects of Price Restrictions on Competition Between National and Local Firms," RAND Journal of Economics, The RAND Corporation, vol. 18(3), pages 333-347, Autumn.
    6. Whinston, Michael D, 1990. "Tying, Foreclosure, and Exclusion," American Economic Review, American Economic Association, vol. 80(4), pages 837-859, September.
    7. Chone, Philippe & Flochel, Laurent & Perrot, Anne, 2000. "Universal service obligations and competition," Information Economics and Policy, Elsevier, vol. 12(3), pages 249-259, September.
    8. Valletti, Tommaso M & Hoernig, Steffen & Barros, Pedro P, 2002. "Universal Service and Entry: The Role of Uniform Pricing and Coverage Constraints," Journal of Regulatory Economics, Springer, vol. 21(2), pages 169-190, March.
    9. Chone, Philippe & Flochel, Laurent & Perrot, Anne, 2002. "Allocating and funding universal service obligations in a competitive market," International Journal of Industrial Organization, Elsevier, vol. 20(9), pages 1247-1276, November.
    10. Panzar, John C., 2000. "A methodology for measuring the costs of universal service obligations," Information Economics and Policy, Elsevier, vol. 12(3), pages 211-220, September.
    11. Anton, James J. & Vander Weide, James H. & Vettas, Nikolaos, 2002. "Entry auctions and strategic behavior under cross-market price constraints," International Journal of Industrial Organization, Elsevier, vol. 20(5), pages 611-629, May.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Bourguignon, Helene & Ferrando, Jorge, 2007. "Skimming the other's cream: Competitive effects of an asymmetric universal service obligation," International Journal of Industrial Organization, Elsevier, vol. 25(4), pages 761-790, August.
    2. Antonio Estache & L. Wren-Lewis, 2008. "Towards a Theory of Regulation for Developing Countries: Following Laffont's Lead," Working Papers ECARES 2008_018, ULB -- Universite Libre de Bruxelles.
    3. Losada, Ramiro, 2004. "On the definition of affordable prices under universal service obligations," UC3M Working papers. Economics we044015, Universidad Carlos III de Madrid. Departamento de Economía.
    4. Poudou, Jean-Christophe & Roland, Michel, 2014. "Efficiency of uniform pricing in universal service obligations," International Journal of Industrial Organization, Elsevier, vol. 37(C), pages 141-152.
    5. Steffen Hoernig, 2006. "Should uniform pricing constraints be imposed on entrants?," Journal of Regulatory Economics, Springer, vol. 30(2), pages 199-216, August.
    6. Mirabel, F. & Poudou, J.-C. & Roland, M., 2009. "Universal service obligations: The role of subsidization schemes," Information Economics and Policy, Elsevier, vol. 21(1), pages 1-9, February.
    7. Stole, Lars A., 2007. "Price Discrimination and Competition," Handbook of Industrial Organization, in: Mark Armstrong & Robert Porter (ed.), Handbook of Industrial Organization, edition 1, volume 3, chapter 34, pages 2221-2299, Elsevier.
    8. Ilie, Laura & Losada, Ramiro, 2004. "Endogenous financing of the universal service," UC3M Working papers. Economics we044116, Universidad Carlos III de Madrid. Departamento de Economía.
    9. Poudou, Jean-Christophe & Roland, Michel, 2017. "Equity justifications for universal service obligations," International Journal of Industrial Organization, Elsevier, vol. 52(C), pages 63-95.
    10. Gautier, Axel & Wauthy, Xavier, 2012. "Competitively neutral universal service obligations," Information Economics and Policy, Elsevier, vol. 24(3), pages 254-261.
    11. Gautier Axel & Paolini Dimitri, 2011. "Universal Service Financing in Competitive Postal Markets: One Size Does Not Fit All," Review of Network Economics, De Gruyter, vol. 10(3), pages 1-30, September.
    12. Balmera, Roberto E. & Ünverb, Mehmet Bilal, 2016. "Cooperative investment in next generation broadband networks: A review of recent practical cases and literature," 27th European Regional ITS Conference, Cambridge (UK) 2016 148657, International Telecommunications Society (ITS).
    13. Balmer, Roberto E., 2014. "Geographic regulation and cooperative investment in next generation broadband networks," 20th ITS Biennial Conference, Rio de Janeiro 2014: The Net and the Internet - Emerging Markets and Policies 106889, International Telecommunications Society (ITS).
    14. Balmera, Roberto E. & Ünverb, Mehmet Bilal, 2016. "Geographic regulation of next generation broadband networks: A review of practical cases and recent literature," 27th European Regional ITS Conference, Cambridge (UK) 2016 148656, International Telecommunications Society (ITS).
    15. Balmer, Roberto E., 2015. "Geographic regulation of next generation broadband networks: A review of practical cases and recent literature," 26th European Regional ITS Conference, Madrid 2015 127125, International Telecommunications Society (ITS).
    16. Hoernig, Steffen & Cambini, Carlo, 2012. "Geographic Access Rules and Investments," CEPR Discussion Papers 9013, C.E.P.R. Discussion Papers.
    17. Axel Gautier & Xavier Wauthy, 2010. "Price competition under universal service obligations," International Journal of Economic Theory, The International Society for Economic Theory, vol. 6(3), pages 311-326, September.
    18. Losada, Ramiro, 2004. "Should network operators be allowed to build joint facilities?," UC3M Working papers. Economics we043914, Universidad Carlos III de Madrid. Departamento de Economía.
    19. Antonio Estache & Liam Wren-Lewis, 2009. "Toward a Theory of Regulation for Developing Countries: Following Jean-Jacques Laffont's Lead," Journal of Economic Literature, American Economic Association, vol. 47(3), pages 729-770, September.
    20. Silvia Concettini & Anna Creti, 2013. "Liberalization of electricity retailing in Europe: coming back or going forth?," Working Papers hal-00915924, HAL.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:crs:wpaper:2003-43. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Secretariat General (email available below). General contact details of provider: https://edirc.repec.org/data/crestfr.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.