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Title:Legal unbundling can be a golden mean between vertical integration and separation PDF Logo
Authors:Höffler, Felix
Kranz, Sebastian
Issue Date:2007
Series/Report no.:Bonn econ discussion papers 2007,15
Abstract:We study an industry in which an upstream monopolist supplies an essential input at a regulated price to several downstream firms. Legal unbundling means that a downstream firm owns the upstream firm but this upstream firm is legally independent and maximizes its own upstream profits. We allow for non-tariff discrimination by the upstream firm and show that under quite general conditions legal unbundling yields (weakly) higher quantities in the downstream market than vertical separation and integration. Therefore, typically consumer surplus will be largest under legal unbundling. Outcomes under legal unbundling are still advantageous when we allow for discriminatory capacity investments, investments into marginal cost reduction and investments into network reliability. If access prices are unregulated, however, legal unbundling may be quite undesirable.
Subjects:Network industries
regulation
vertical relations
investments
ownership
sabotage
JEL:D2
D4
L1
L42
L43
L51
Document Type:Working Paper
Appears in Collections:Bonn Econ Discussion Papers, Bonn Graduate School of Economics (BGSE), Universität Bonn

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