The Role of Informational Rents: Network Utilities and Vertical Structure
AbstractThis paper presents a theoretical assessment of the efficiency implications of alternative vertical structures in an industry characterized by a natural monopoly, vertically related to potentially competitive markets (network utilities). Based on the incomplete contracts and asymmetric information paradigm, I show that the monopoly’s informational rents vary according to the vertical structure of the industry. This, in turn changes the relative advantages of these alternative structures in terms of their allocative and productive inefficiencies. The main policy conclusion of this paper is that the existence of conglomerates in network industries matters. This paper’s contribution is that its exploration of the issue does not assume that monopolies behave in an uncompetitive fashion toward their rivals, as is common in the literature on this subject. This paper, therefore, offers an economic rationale for vertical separation.
Upon submission of an article, authors are asked to indicate their agreement to abide by an open-access license. The license permits any user to download, print out, extract, archive, and distribute the article, so long as appropriate credit is given to the authors of the work. The license ensures that your article will be as widely available as possible and that your article can be included in any scientific archive. Please read about the Creative Commons Attribution License before submitting your paper.
Except where otherwise noted, content on this site is licensed under a Creative Commons Attribution 3.0 License