Network interconnectivity with competition and regulation

Network interconnectivity with competition and regulation

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Article ID: iaor2013751
Volume: 47
Issue: 1
Start Page Number: 97
End Page Number: 110
Publication Date: Jan 2013
Journal: Transportation Research Part A
Authors: , ,
Keywords: economics, commerce, supply & supply chains
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 a scenario 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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