The Promise and Pitfalls of Restructuring Network Industries

Stefan Buehler 1
  • 1 University of Zurich and University of St. Gallen,, St. Gallen, Switzerland

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.

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