Efficient access pricing andendogenous market structure

We analyse a (differentiated good) industry where an incumbent firm owns a networkgood (essential input) and faces potential competition in the (downstream) retailmarket. Unlike the traditional approach, we consider a scenario where the decision tocompete or not in the downstream segment is endogenous, and this decision dependson the particular mechanism designed by the utilitarian regulator. We assume that thetechnology of the potential entrant is private information. We derive the efficient(Ramsey) prices and access charge taking the impact of a non-discriminatorymechanism on entry decision into account. We assert that the optimal pricing formulamust include a Ramsey term that is inversely related to the "modified" superelasticityof the retail good under consideration. We further show, under unknown cost, thatthere might be "excess" or "too little" entry compared to the socially optimal level....