Congestion pricing of inputs in vertically related markets

Isamu Matsukawa

Industrial Organization from EconWPA

Abstract: This paper conducts a welfare analysis of a two-part tariff that is applied to the congestion pricing of inputs supplied by a natural monopolist with increasing returns to scale to competitive firms that require an input in a fixed proportion to output. Congestion pricing of inputs is optimal for both the welfare-maximizing regulator and the profit-maximizing monopolist if it is applied in the form of a uniform price for the input. However, a two-part tariff for the congestion pricing of inputs is optimal if competition in the downstream market is imperfect or if there is demand uncertainty in the market.

Keywords: two-part; tariff (search for similar items in EconPapers)
JEL-codes: L (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com, nep-ind and nep-mic
Date: 2005-06-28
Note: Type of Document - pdf; pages: 35
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpio:0506012

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