Effect of imperfect competition on infrastructure charges

Abstract

The text explores the optimal infrastructure charges of an unbundled activity where the infrastructure manager sells the use of the infrastructure to operators providing services to a downstream market made up of atomistic customers. This situation has been widely analysed under the assumption that the upstream market is competitive, but more rarely in the case of imperfect competition. Typical examples are the railways activity in Europe and air transport. Various market structures are considered, illustrated by situations encountered in the transport field: a single mode operated by a single operator, two operators competing within the same mode, and two modes competing in a Bertrand way. In each case, situations are analysed using analytic formulae with a simplified demand function and a simplified cost function, and performing simulations with sensible parameter values drawn from current average situations. The main result is that the analysed imperfections make a dramatic departure from the conventional Marginal Cost pricing doctrine. Conclusions are drawn regarding infrastructure charging policy.