General access payment mechanisms

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Official URL: http://dx.doi.org/10.1007/978-3-7908-2082-9_2

Despite the voluminous literature documenting their problems, per unit access pricing mechanisms are the most common ones used in practice. Interestingly, neither legal documents nor theoretical work on access payments provide any justifications for restricting access payments to per-unit charges. In this paper, we examine the properties of general one-way access payment mechanisms where payments from the entrants to the incumbent are expressed as functions of retail prices. We find that by imposing a linear access pricing mechanism the regulator can implement any pair of retail prices, including the first best. We also show that a per-unit access mechanism, including one which is cost-based, is incapable of implementing the first-best outcome. Moreover, we obtain a partial welfare ordering of payment mechanisms in that any linear access payment mechanism that depends negatively on the incumbent’s price and positively on the entrant’s price generates desirable outcomes with higher consumer welfare than payment mechanisms where parameters have the opposite signs.