Biased quality investments and organisational structures in network industries: An application to the railway industry

Arbeitspapier

This paper analyses the incentives to upgrade input quality in vertically related (network) industries. Upstream investments have a biased effect on the downstream companies and lead to vertical product differentiation. Different vertical structures such as vertical integration, ownership and legal unbundling lead to different investments. We find that, without regulation, vertical integration and legal unbundling regimes provide highest investment incentives and lead to highest welfare. However, we also find foreclosure in the downstream market if the potential degree of horizontal product differentiation of the entrant is low. Under ownership unbundling, investment incentives are lower but there is never foreclosure of the entrant since this would worsen double marginalisation. When the network operator is subject to a break-even regulation, the investment incentives are crowded out under legal and ownership unbundling whereas they remain nearly unchanged under vertical integration. Welfare and consumer surplus decrease under legal unbundling, but increase under the two other regimes.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: MAGKS Joint Discussion Paper Series in Economics ; No. 09-2011

Classification and Topics

• Classification: Wirtschaft ; Legal Monopolies and Regulation or Deregulation ; Economics of Regulation ; Railroads and Other Surface Transportation
• Subject: vertical integration ; investment ; foreclosure ; regulation ; Netzzugang ; Vertikale Konzentration ; Investition ; Ökonomischer Anreiz ; Schienenverkehr ; Lieferanten-Kunden-Beziehung

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Pakula, Benjamin ; Götz, Georg
• Event: Veröffentlichung
• (who): Philipps-University Marburg, Faculty of Business Administration and Economics
• (where): Marburg
• (when): 2011

Further information

• Handle: http://hdl.handle.net/10419/56510
• Last update: 10.03.2025, 11:44 AM CET