Universal Service Obligations and Competition with Asymmetric Information

Jean-Christophe Poudou, Roland Michel and Thomas Lionel
Additional contact information
Roland Michel: Université Laval, michel.roland@ecn.ulaval.ca
Thomas Lionel: Université de Franche-Comté, lthomas@univ-fcomte.fr

The B.E. Journal of Theoretical Economics, 2009, vol. 9, issue 1, 25

Abstract: A regulator imposes a universal service obligation (USO) on a vertically integrated firm that owns an essential network. The regulator has imperfect information about the network's fixed cost. Network access is provided to licensed competitors. The USO consists in a constraint on market coverage and is compensated through a mix of public funds and transfers from entrants. We first use a basic adverse selection model to show that, because of informational rents, a sufficiently high shadow cost of public funds can lead to a lower coverage with the USO than without it. We then show that this result tends to be robust in various realistic extensions of the basic model.

Keywords: universal service obligations; coverage constraints; asymmetric information; regulation (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (3)

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DOI: 10.2202/1935-1704.1581

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