Barring consumers from the electricity network might improve welfare

A monopolist supplies a homogenous good to two geographically separated markets. Production costs and demand conditions are di?erent in each market. A line with a limited transport capacity connects both markets. The paper compares two institutional frameworks: (1) exclusive access to the line is granted to the monopolist (2) access to the line is auctioned to the monopolist and consumers. It derives the monopolist's strategy, and illustrates the result with examples. In general, it is not clear-cut which regime gives the highest total surplus. For linear demand functions exclusive access is superior to auctioning, if transport capacity is small, cost differences are large and demand conditions similar.