Welfare Analysis of Market Structures in Network Public Utility Industries : A Contract Theory

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The purpose of this study is to provide welfare analysis of market structures in network pubic utility industries. We apply a contract theory to study this issue. Our study consists of three papers, which we explain in the followings1."Make-or-Buy Decisions with Coalition Formation" (with an application to LRIC in Telecommunications)We examine not only an entrant's decision, but also an incumbent's decision, on which size network facility is made by forming a coalition when faced with a given access price. We show the possibility for inefficient coalition formation, even though entrants make an efficient make-or-buy decision, irrespective of its level. Applying this result to telecommunication industry, we then claim that the long-run incremental cost (LRIC) principle cannot give an appropriate incentive for investing in broadband infrastructures through coalition formation.2."Competition with Open Access Policy under Uncertainty"Comparing a competition under open access policy with a facility-based competition, we try to examine the effect of open access policy on a firm's incentive to enter a market. W show that, when uncertainty or the monopoly profit is small and the level of access charge is high, a leader in open access environment enters earlier than the one in the facility-based competition.3."Informational Asymmetry within a Firm Affects an Oligopolistic Market Outcome"We consider a Cournot market competition in which the owner of each firm hires a manager and let him improve the firm's efficiency by reducing production costs. There are two types of firms: in the first type of firms, there is informational asymmetry between the owner and the manager, whereas it is not so in the second type of firms. We then show that an increase in the number of the second type of firms brings a decrease in the expected consumer surplus in the market equilibrium.