On the Definition of Affordable Prices under Universal Service Obligations
39 Pages Posted: 5 Apr 2010
Date Written: March 31, 2010
Abstract
In this paper, we investigate the social welfare implications of the European and American definition of affordable prices when a country is divided into independent zones. We find that the European definition is always social welfare superior, because it forces prices to be kept lower. We also introduce two new definitions of affordable prices. The first definition advocates a common price for the unprofitable area. We prove that this definition is social welfare superior to the current definitions.In the second definition denoted as {"yardstick pricing"}, we define the affordable prices for the unprofitable areas as a function that does not depend on their own zone profitable area price. We show that yardstick pricing is more efficient for social welfare when the differences in demand among zones are not very large.
Keywords: Universal Service Obligations, Affordable
JEL Classification: I31, L96
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Universal Service and Entry: The Role of Uniform Pricing and Coverage Constraints
By Tommaso M. Valletti, Steffen Hoernig, ...
-
Game Theory and Industrial Organization
By Kyle Bagwell and Asher Wolinsky
-
Express Delivery and the Postal Sector in the Context of Public Sector Anti-Competitive Practices
-
By Susan Athey