Regulation and foreclosure

Abstract

The paper considers the optimal regulation of access charges, and the effect such regulation has on incentives to foreclose downstream rival firms. I show that when a vertically integrated firm is able to discriminate against rivals by means of non-price measures, optimal access charges must be set higher than in the case when no discrimination is possible and will always provide a positive access margin. The reason is that the level of the access charge affects incentives to practice foreclosure. The optimal access charge may, when non-price measures are not possible, be lower than marginal cost of providing access.