The Promise and Pitfalls of Restructuring Network Industries
Posted: 11 Dec 2004 Last revised: 26 Mar 2020
Date Written: 2005
Abstract
This paper examines the competitive effects of reorganizing a network industry's vertical structure. In this industry, an upstream monopolist operates a network used as an input to produce horizontally differentiated final products that are imperfect substitutes. Three potential pitfalls of restructuring integrated network industries are analyzed: (i) double marginalization, (ii) underinvestment, and (iii) vertical foreclosure. The paper studies the net effect of restructuring on retail prices and cost-reducing investment and discusses policy implications.
Keywords: Access pricing, investment, double marginalization, vertical foreclosure, product differentiation
JEL Classification: D43, L43
Suggested Citation: Suggested Citation