Network Economics

Principles - Strategies - Competition Policy

verfasst von: Günter Knieps

Verlag: Springer International Publishing

Buchreihe : Springer Texts in Business and Economics

Enthalten in: Springer Professional "Wirtschaft+Technik" , Springer Professional "Technik" , Springer Professional "Wirtschaft"

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Über dieses Buch

This textbook on network economics provides essential microeconomic instruments for the analysis of network sectors like telecommunications, transport or energy. Network-specific characteristics emerge both on the cost side and benefit side, requiring network providers to develop innovative entrepreneurial competition strategies for costing, pricing, and investment. From a competition policy perspective, a number of interesting questions arise: In which parts of networks is competition functional? In contrast, where is an abuse of market power to be expected? What is the division of labor between cartel authorities and regulatory agencies? The book develops an analytical framework for all network industries which allows readers to study entrepreneurial strategies as well as regulation and competition policies for network industries.

Inhaltsverzeichnis

Frontmatter

1. Introduction to Network Economics

Abstract

This chapter provides an introduction to the characteristics of network economics. The basic principle of the different complementary network levels is introduced. Based on a disaggregated examination of the value chains in network sectors, end customer markets for network services can be differentiated from upstream markets for infrastructure capacities. Due to the market opening of networks, issues of organisation and network interconnection become increasingly more important. The role of markets for network services as well as network infrastructure capacities is explained, taking into account network externalities as well as economies of scale and economies of scope.

Günter Knieps

2. Decision-Relevant Costs

Abstract

Compared to other industries, the building of network infrastructure requires a particularly large capital expenditure. An economically well-founded periodisation of user cost of capital is therefore of special relevance for the calculation of decision-relevant costs. Concepts of decision-relevant costs are relevant for the level of network services, as well as the level of network infrastructure.

Günter Knieps

3. Congestion Externalities

Abstract

The phenomenon of congestion can be observed on the markets for network services (level 1) as well as on the markets for infrastructure capacities (levels 2 and 3). Congestion externalities can be involved in the use of any transportation infrastructures, such as airports, railway tracks, ports and roads. The field that has been studied most intensively in the literature of transport economics is road congestion externalities. Therefore, in this chapter we will in particular examine the congestion problem on motorways. A special type of network externalities is to be found in electricity transmission networks. Because of certain laws of physics (Ohm’s Law, Kirchhoff's Laws), electricity transmission is not confined to a specific path. As a result of the physical and technological characteristics of electricity transmission, system network externalities are of central importance in the electricity sector.

Günter Knieps

4. Strategies for Price Differentiation

Abstract

A distinction has to be made between the application of price instruments on the markets for network services (retail markets) and price instruments on the markets for network infrastructure capacities (upstream markets). In this chapter it is assumed that free market entry is allowed on these markets and that the entrepreneurial search for price structures is not obstructed by regulatory interventions.

Günter Knieps

5. Auctions

Abstract

An auction is a market mechanism which, by means of explicit rules, transfers market players' bids into an allocation of resources. An auction yields an unequivocal result as to which market player gets a specific object at which price. In network sectors auctions have considerable potential as allocation mechanisms for network services (e.g. providing bus services) and for the provision of network infrastructure capacities (e.g. take-off and landing slots on airports). In this context, auctions of public resources, for instance radio frequencies, on the basis of which network infrastructures can be built, are the best known examples. This chapter analyses the network-specific particularities of auctions in network industries.

Günter Knieps

6. Compatibility Standards in Networks

Abstract

Compatibility standards have for a long time been of great importance in many areas of the economy. Examples are measures for weights and lengths, languages, the width of rail tracks, voltage, or transmission and switching protocols in telecommunications. Traditionally, setting, enforcing and changing suitable compatibility standards has primarily been the responsibility of engineers and lawyers. Only a few decades ago have economists started to address this problem. In the meantime the economics of compatibility standards is a well-established field in modern industrial economics and network economics.

Günter Knieps

7. Universal Service

Abstract

Universal service includes the obligation on the part of the network operator to provide specific services in the whole area for which the obligation is relevant. In particular, this means general access to the service at politically desirable rates, and guaranteeing a certain minimum quality. In traditional regulatory policy universal service obligations in combination with legal entry barriers as well as market power regulation were applied. In network sectors with free market entry universal service objectives can no longer be financed by means of internal subsidisation (cross subsidisation) and there is no longer only one possible network provider that can supply them. Thus it becomes necessary to realise politically desirable universal service objectives without favouring, or discriminating against, individual market players. A transparent way of solving this problem is a universal service fund, which will be characterised in this chapter.

Günter Knieps

8. Market Power Regulation

Abstract

Since the comprehensive abolishment of legal barriers to entry in (almost) all network sectors network economics has undergone a paradigm shift. Whereas before the opening of the markets the controversial question was if and to what degree competition in network industries could function at all, in the meantime the central controversy of network economics has shifted to the division of labour between sector-specific regulation and general competition law. This chapter presents the disaggregated approach of market power regulation. The normative theory of regulation defines the criteria for determining which network areas should be regulated (regulatory basis), which instruments should be used to do so (regulatory instruments) and how these instruments should be applied. The central question is how network industries should be regulated.

Günter Knieps

9. The Positive Theory of Regulation

Abstract

The positive theory of regulation studies the emergence, the transformation, and the abolishment, as well as the institutional implementation of sector-specific regulation. Thus the central question is how network industries actually are regulated. In examining this question, the influence exercised by firms, consumer interests, and the bureaucratic self-interest of the regulatory agency must be taken into account in order to explain the behaviour of regulators. The various interest groups of consumers and producers as well as other related interest groups (pursuing e.g. environmental, health, climate, landscape conservation interests) compete with each other in their quest for political influence. The influence exerted by the interest groups involved is fundamentally dependent on the institutional framework.

Günter Knieps

Backmatter

Titel: Network Economics
verfasst von: Günter Knieps
Verlag: Springer International Publishing
Electronic ISBN: 978-3-319-11695-2
Print ISBN: 978-3-319-11694-5
DOI: https://doi.org/10.1007/978-3-319-11695-2