Wednesday, August 26, 2015
Niklas Horstmann, Karlsruhe Institute of Technology, Jan Kraemer, University of Passau, and Daniel Schnurr, Karlsruhe Institute of Technology examine Wholesale Competition and Open Access Regimes: Experimental Evidence.
ABSTRACT: We investigate the effects of wholesale competition and alternative open access regimes on market performance. By means of an economic laboratory experiment we systematically vary the competitive intensity at the wholesale level and compare market outcomes under no regulation and a margin squeeze regulation, where the retail price of integrated firms must exceed the wholesale price. Our analysis suggests that the introduction of wholesale competition does not necessarily lead to a more competitive outcome compared to a wholesale monopoly. Indeed, whether wholesale competition reduces market prices and benefits consumers hinges critically on the level of competitive intensity at the wholesale level. Moreover, irrespective of the level of wholesale competition, we do not find evidence that a margin squeeze regulation reduces retail market prices. In fact, while margin squeeze regulation may benefit the non-integrated reseller it tends to increase retail prices.