In our model, production of a final good requires access to an excludable resource owned by an integrated firm. The quality of the resource depends on an investment by the owner and impacts
the downstream demand curve. Under open access, the owner must share the resource with downstream competitors at a regulated tariff. We show that quality exceeds the monopoly level, and increases with the number of competitors, if the access tariff is set according to a principle we call revenue neutrality. Our results contradict the notion that dynamic efficiency must be sacrificed for gains in static (allocative) efficiency. (JEL D21, D43, D45, L24, O34)
"Open Access and Dynamic Efficiency."
American Economic Journal: Microeconomics,
Firm Behavior: Theory
Market Structure and Pricing: Oligopoly and Other Forms of Market Imperfection
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