Endogenous Average Cost Based Access Pricing

We consider an industry where a downstream competitor requires access to an upstream facility controlled by a vertically integrated and regulated incumbent. The literature on access pricing assumes the access price to be exogenously ...xed ex-ante. We analyze an endogenous average cost based access pricing rule, where both ...rms realize the interdependence among their quantities and the regulated access price. Endogenous access pricing neutralizes the arti...cial cost advantage enjoyed by the incumbent ...rm and results in equal or higher consumer surplus. If the entrant is more e¢cient than the incumbent, then the welfare under endogenous access pricing is also higher. 1We are grateful to Kåre P. Hagen and Kurt Jörnsten for valuable discussions. Furthermore, we gratefully acknowledge ...nancial support from the Research in Economics and Business Administration, Norway.