Norwegian School of Economics and Business Administration. Department of Economics
Abstract
We consider an industry where a downstream competitor requires
access to an upstream facility controlled by a vertically integrated and regulated
incumbent. The literature on access pricing assumes the access price to be exogenously
fixed ex-ante. We analyze an endogenous average cost based access
pricing rule, where both firms realize the interdependence among their quantities
and the regulated access price. Endogenous access pricing neutralizes the artificial
cost advantage enjoyed by the incumbent firm and results in equal or higher consumer
surplus. If the entrant is more efficient than the incumbent, then the welfare under endogenous access pricing is also higher