"A Dynamic Analysis of the Common Use of Network in Public Utility Industries"

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The purpose of the research project is to provide an economic analysis of the common use of network facilities in public utility industries, like electricity, telecommunication, natural gas, etc. The contributions made by the research project are presented in the following two papers.1."Vertical Separation vs, Vertical Integration : Entry Deterrence and Cost- Reducing Incentives with Access Regulation"This paper examines access regulation under a deregurated downstream environment and asks whether a vertically integrated incumbent should be unbundled or not. To consider this issue, the model in the paper features an incumbent firm's entry-deterrence incentive and the investment for process innovation on a network facility. Then, the analysis firstly shows that the incumbent generally has less (more) entry-deterrence incentive under integration than under separation when an access charge is low (high). Secondly, the main merit of vertical separation is to provide a lower price of public-utility good, while its demerit is its weak power to induce an incumbent to invest for process innovation on network facility. Also, welfare comparison between the two vertical regimes depends on the magnitude of shadow cost of public funds, which makes the comparison a subtle issue.2."Deregulation and Capital Investment"This paper examines public-utility firms' incentives for capital investment with deregulation or the introduction of competition. In the paper, we claim by using real option approach that the deregulation makes the firms' incentives for investment weak, since it causes uncertainty to the firms through entry threat. Also, we discuss the policy remedies for the improvement of the investment incentives in the paper.