A BEJTE Topics article.

Abstract

A regulator imposes a universal service obligation (USO) on a vertically integrated firm that owns an essential network. The regulator has imperfect information about the network's fixed cost. Network access is provided to licensed competitors. The USO consists in a constraint on market coverage and is compensated through a mix of public funds and transfers from entrants. We first use a basic adverse selection model to show that, because of informational rents, a sufficiently high shadow cost of public funds can lead to a lower coverage with the USO than without it. We then show that this result tends to be robust in various realistic extensions of the basic model.

Submitted: June 18, 2009 · Accepted: October 14, 2009 · Published: October 19, 2009

Recommended Citation

Poudou, Jean-Christophe; Roland, Michel; and Thomas, Lionel (2009) "Universal Service Obligations and Competition with Asymmetric Information," The B.E. Journal of Theoretical Economics: Vol. 9 : Iss. 1 (Topics), Article 35.
DOI: 10.2202/1935-1704.1581
Available at: http://www.bepress.com/bejte/vol9/iss1/art35