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Regulating a Monopoly with Universal Service Obligation: The Role of Flexible Tariff Schemes

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Abstract

This paper’s purpose is to study the problem of a regulator of a utility monopoly, who has a universal service goal that is binding, in the sense that there is no two- part tariff that can induce efficient consumption, self-finance the firm, and guarantee universal access at the same time. The optimal two-part tariffs that the regulator should set under the following three different regulatory rules are derived: no flexibility (the monopolist just offers the regulated plan), partial flexibility (the monopolist can offer alternative plans, but these -and the regulated one- must be available to all customers), and full flexibility (the regulated plan must be available to all customers, but not the alternative ones). The solutions under the three schemes are characterized, and provide an unambiguous ranking of regulatory rules: total flexibility is weakly better than partial flexibility, with the latter being strictly better than no flexibility.

Suggested Citation

  • Manuel Willington & Jorge Lining, 2009. "Regulating a Monopoly with Universal Service Obligation: The Role of Flexible Tariff Schemes," ILADES-UAH Working Papers inv239, Universidad Alberto Hurtado/School of Economics and Business.
    • Handle: RePEc:ila:ilades:inv239
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    More about this item

    Keywords

    Monopoly regulation; network utilities; universal service obligation; Non-Linear Tariffs;
    All these keywords.

    JEL classification:

    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General
    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General

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