Abstract
Whether to deregulate and allow entrants to join competition can improve the social welfare or not is a profound issue for competition law authorities. If the answer is positive, then to open the market and the competition is duty-bound. However, when there is a possibility that (1) too little efficient entry into markets will occur, or (2) entry occurs when it is socially undesirable, the design of policy becomes very essential. According to this analysis, it is difficult for incumbent to adopt marginal cost pricing. Therefore, once we open the market, the situations will occur. Hence, in order to enhance the social welfare, the policy makers should adopt taxation and subsidy to compensate these two problems.
Based on the analysis, if entrants need incumbent to provide essential facilities
to enter market, then the price should be based on the ECPR instead of the cost.
Under this pricing rule, if the entrants “lease” the essential facilities,
the rent must equal the profit incumbents lost. If the entrants share the essential
facilities with incumbent by “line sharing” and whenever the entrants increase
a unit of sales, the incumbent will lose one unit, the rent should be lower
than lease price. That is to say, the lower the displacement of the service
or products is, the cheaper the price of essential facilities should be.
As for telecommunications markets, if local loop is one of the essential facilities,
when entrants ask to lease one local loop line to provide fixed-line service,
the Chunghwa Telecom Co. will lose the profit of that line; therefore, the rent
should be equal to a loss. On the other hand, when the entrants require sharing
the local loop lines to provide DSL service, the CTC can still provide voice
service. Hence, the rent should be cheaper than the lease price.
Therefore, this research suggests adopting the following principles to deal
with the sharing problems of essential facilities.
In practical, a reasonable rent standard can be verified through the following steps:
According to the ECPR, the rent
of “nonexcludability” should be: after sharing the facilities with the competitors,
(1) the profit incumbent lost (gained), plus (minas) (2) the cost incumbent
bore.