Excess entry in vertically related markets

Abstract

This paper considers the problem of excess entry in vertically related markets when the regulator can regulate market structure and access charges. The endogenous access charge introduces an asymmetry between firms which affects the degree of excess entry. I find that the excess entry result of Mankiw and Whinston (1986) does not generally carry over to vertically related markets. It is shown that regulating access charges combined with no structure regulation is always the best option. For an interval of the downstream fixed cost, no regulation of the access charge yields the same level of welfare as the regulated case.