Friday, November 25, 2011

Network Interconnectivity with Regulation and Competition

Posted by D. Daniel Sokol

Jolian McHardy (Department of Economics, The University of Sheffield), Michael Reynolds, and Stephen Trotter address Network Interconnectivity with Regulation and Competition.

ABSTRACT: A simple theoretical network model is introduced to investigate the problem of network interconnection. Prices, profits and welfare are compared under welfare maximisation, network monopoly and network monopoly with competition over one part of the network. Given that inducing actual competition may bring disbenefits such as cost duplication and co-ordination costs, we also explore the possibility of a regulator using the threat of entry on a section of the monopoly network in order to bring about the socially preferred level of interconnectivity. We show that there are feasible parameter values for which such a threat is plausible.

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