Template-Type: ReDIF-Paper 1.0
Title: Legal Unbundling can be a Golden Mean between Vertical Integration and Separation
Author-Name: Felix Höffler
Author-Name: Sebastian Kranz
Author-Email: skranz@uni-bonn.de
Classification-JEL: D2, D4, L1, L42, L43, L51
Keywords: Network industries, regulation, vertical relations, investments, ownership, sabotage
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.
Note: 
Length: 35
Creation-Date: 2007-11
Revision-Date: 
File-URL: http://www.wiwi.uni-bonn.de/bgsepapers/bonedp/bgse15_2007.pdf
File-Format: application/pdf
Handle: RePEc:bon:bonedp:bgse15_2007