SEMINAR SERIES on ICTs POLICY RESEARCH: Can Vertical Separation Reduce Non-Price Discrimination and Increase Welfare?

Professor João Vareda (Autoridade da Concorrência)

Tuesday, February 9th 2010 16:30pm
Room 5.09, 5th floor, North Tower, Instituto Superior Técnico
Refreshments provided

Abstract:
We investigate if vertical separation can reduces non-price-discrimination, and increases welfare. The industry is a differentiated products duopoly, where an incumbent and an entrant sell horizontally and vertically differentiated products. The incumbent owns a wholesale unit and a retail unit. The entrant only owns a retail unit. Either retail unit needs access to the input produced by the wholesale unit to operate. The wholesale unit can degrade the quality of input it supplies to either of the retail units. The sectoral regulator sets the access price to the wholesale unit’s services. Vertical separation reduces the set of parameter values for which discrimination occurs, however, it does not guarantee no discrimination. In fact, under vertical separation, the wholesale unit may increase its level of discrimination against the entrant. Furthermore, under vertical separation, the wholesale unit may discriminate against the incumbent’s retail unit when there was no discrimination under vertical integration. Vertical separation impacts social welfare through two effects. First, through the double-marginalization effect, which is negative. Second, through the discrimination effect, which can be positive of negative depending on whether separation decreases or increases discrimination, and both cases may occur. If vertical separation increases or does not change the level of discrimination, the net impact on welfare is negative. If vertical separation reduces discrimination, the net impact is potentially ambiguous.

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Topic: Professor João Vareda - Can Vertical Separation Reduce Non-Price Discrimination and Increase Welfare?
Date: Tuesday, February 9, 2010
Time: 4:30 pm, GMT Time (London, GMT)
Meeting Number: 849 502 282
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