Stepping stones and access holidays: The fallacies of regulatory micro-management

Günter Knieps and Patrick Zenhäusern

No 123, Discussion Papers from University of Freiburg, Institute for Transport Economics and Regional Policy

Abstract: Good intentions are no substitute for sound economic regulation. Using the 'investment ladder' as the stick and access holidays as the carrot is hardly an effective way to generate competition. On the contrary, this approach creates a regulatory spiral. What regulators plead for today is in effect an obligatory sharing regime for nearly all network elements. However, this splitting up of networks into their elements by ad hoc regulatory interventions is destroying consumer welfare. Instead, rule-based regulation of network-specific market power should be implemented by means of a disaggregated regulatory mandate, limiting incentive regulation to essential facilities as a whole.

Date: 2009
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