Working Paper: CEPR ID: DP2802
Authors: Bernard Caillaud; Jean Tirole
Abstract: The Paper analyses the funding of an infrastructure project (high speed train line, platform, tunnel, harbor, regional airport, fibre-to-the-home network, etc.) in a situation in which an incumbent operator has private information about market profitability (demand, cost) and the infrastructure owner is subject to a budget constraint, either on a per project basis or over the entire infrastructure. An open access policy raises welfare, but may make the project non-viable since funding must be provided by capital contributions and access charges.The infrastructure owner can ask the incumbent for a higher capital contribution if the latter insists on an exclusive use. Yet, such screening is at odds with social goals: The incumbent is willing to pay more for exclusivity, the higher the demand (the lower the cost), that is precisely when competition yields the highest benefits. At the optimum, the incumbent's information impacts the decision of whether to build the infrastructure, but is not used to determine market structure.The Paper further shows that an absence of long-term licencing favours monopoly franchising, while a threat of regulatory capture creates an open-access presumption.
Keywords: access; competition; essential facility financing
JEL Codes: D40; L51
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| incumbent operator's private information about market profitability, demand, and costs (D89) | infrastructure financing decision (H54) |
| open access policy (L17) | welfare enhancement (I38) |
| open access policy (L17) | jeopardize project viability due to funding constraints (O22) |
| incumbent demands exclusivity (D45) | increase in capital contributions from the infrastructure owner (H54) |
| demand increases (J23) | cost of infrastructure decreases (H54) |
| cost of infrastructure decreases (H54) | greater willingness from the incumbent to pay for exclusivity (D42) |
| absence of long-term licensing (D45) | favors monopoly franchising (L12) |
| regulatory capture concerns (G18) | default to open access presumption (L17) |