SLIDE 1
Duarte Brito Pedro Pereira João Vareda
2
Background
Can Separation reduce Non-Price Discrimination and increase - - PowerPoint PPT Presentation
Can Separation reduce Non-Price Discrimination and increase - - PowerPoint PPT Presentation
Can Separation reduce Non-Price Discrimination and increase Welfare? Duarte Brito Pedro Pereira Joo Vareda Background 2 vertically integrated firm wholesale monopolist incentives discriminate retail rivals Background 3 non-price
SLIDE 2
SLIDE 3
3
Background
non-price discrimination harder to detect/prosecute than price discrimination
SLIDE 4
4
Background
various types of vertical separation proposed in different contexts e.g., Regulation of NGN
SLIDE 5
5
Background
Reasoning:
1) vertically integrated firm discriminates 2) separation eliminates discrimination 3) no-discrimination increases welfare
SLIDE 6
6
Plan
(1) Model (2) Discrimination (3) Separation (4) Conclusion
SLIDE 7
7
Part 1 of 4
Model
SLIDE 8
8
Industry
Two Overlapping Markets wholesale market retail market
SLIDE 9
9
Wholesale Market wholesale market produces input indispensable for retail market a – access price regulated monopolist wholesaler
SLIDE 10
10
Retail Market
incumbent’s retailer entrant D – relative quality
horizontal and vertical differentiated
SLIDE 11
11
Vertical Integration and Separation
incumbent= wholesaler+incumbent’s retailer incumbent may be separated
SLIDE 12
12
Quality Degradation
wholesaler can degrade quality of input
demand-reducing/cost-increasing
SLIDE 13
13
Pricing
retail: two-part tariffs wholesale: linear tariff, a
- nly wholesale regulated
SLIDE 14
14
Timing
(1) regulator decides separation (2) wholesaler decides degradation (3) retail competition
SLIDE 15
15
Comments
no vertical-integration economies same access price
SLIDE 16
16
Part 2 of 4
Discrimination
SLIDE 17
17
Discrimination: Vertical Integration
against entrant
a low & D low
no discrimination
a high D high
SLIDE 18
18
Discrimination: Vertical Separation
against entrant
a low & D low
against incumbent’s retailer
a low & D high
no discrimination
a high & D intermediate
SLIDE 19
19
Comparison
set of parameter values for which there is degradation against entrant is smaller under separation discrimination against entrant may increase with separation incumbent’s retailer may be discriminated against no discrimination under integration and separation, if a high entrant always discriminated if (a, D) low
SLIDE 20
20
Comparison
SLIDE 21
21
Comparison
SLIDE 22
22
Comparison
almost anything goes!
SLIDE 23
23
Welfare
discrimination can welfare if D low: entrant if D high: incumbent’s retailer discriminate low quality
SLIDE 24
24
Part 3 of 4
Separation
SLIDE 25
25
Welfare
Effects:
(1) double-marginalization: - (2) discrimination: +/-
SLIDE 26
26
Integration Socially Optimal
Integration Separation
no discrimination no discrimination no discrimination discriminate inc. discriminate ent. no discrimination discriminate ent. discriminate ent. D low
SLIDE 27
27
Vertical Structure
- therwise
socially optimal decision potentially ambiguous
SLIDE 28
28
Part 4 of 4
Conclusion
SLIDE 29
29
Conclusions
(1) separation can, but need not eliminate
discrimination
(2) sometimes discrimination is good (3) use vertical separation with care!
SLIDE 30
30