Pierfrancesco Reverberi

OPERATING COSTS AND MARKET ORGANIZATION IN RAILWAY SERVICES. THE CASE OF ITALY, 1980-1995

Abstract We estimate a transcendental logarithmic ( translog ) short-run variable cost function for the Italian railway company, Ferrovie dello Stato (FS), using data on the years 1980–1995. Within the study period, we show that: (a) the translog function represents a good approximation of the underlying technology of FS; (b) all production factor demands are inelastic; (c) FS has a limited ability to substitute between inputs; (d) FS operates with diseconomies of density. A major implication of these findings is that the rail network is not used optimally, so that either a cut in the frequency of trains or a rise in capital investments seems to be indicated. Since the estimated cost function is super-additive at the relevant output levels, we derive that rail service provision in Italy would not behave as a natural monopoly in the absence of regulation. Indeed, allocative efficiency indicates that there is enough room for a duopolistic industry where joint or specialized production of passenger and freight carryings would be pursued, mainly depending on firm size.

New operations research and artificial intelligence approaches to traffic engineering problems

Abstract The purpose of this paper is to review some of the main Operations Research (OR) and Artificial Intelligence (AI) research achievements in the field of traffic engineering, with particular reference to road traffic control. Therefore, the performances of the discussed approaches are illustrated and compared with respect to the features and the requirements which characterize some of the most relevant problems in the area of interest. The potential for a combined use of typical OR and AI methods and techniques when solving complex real-world, large-size traffic control problems is also emphasized. Finally, some concluding remarks are drawn that highlight the new challenges awaiting for the scientific community efforts.

Broadband investment and welfare under functional and ownership separation

We study how the vertical industry structure affects investment in network quality and social welfare, with a focus on the prospective deployment of high-speed broadband access networks (the so-called NGA). We model pros and cons of vertical separation, namely, pro-competitive effects and loss of some efficiencies of vertical integration, and distinguish functional separation from ownership separation. Our findings challenge the presumption that (compared with vertical integration) vertical separation reduces investment incentives and involves a trade-off between promoting consumer surplus and ensuring investment. While investment is higher under ownership rather than functional separation, the latter may yield the highest social welfare among vertical industry structures. Furthermore, the incumbent may voluntarily opt for functional separation, but in some of these cases, prohibiting separation improves welfare.

Praticabilità dell'"unbundling": aspetti regolamentari e tutela della concorrenza

We analyse the operational implications of carrying out local loop unbundling, to identify the structural barriers that delay entry by alternative operators. We claim that this analysis should be used to define appropriate price squeeze tests, to be applied both as ex-post antitrust and ex-ante regulatory tools to prevent market foreclosure by incumbent firms. We apply these tests to the 2002 Reference Offer proposal relative to access to the public telephone network at a fixed location for residential customers in Italy and find that the growth of competition in that market may be prevented. Therefore, we propose a number of measures aimed at pursuing dynamic efficiency, namely, providing incumbents with adequate incentives to share with new entrants both the benefits from scale economies and the costs inherent to developing competition. This appears to be consistent with the spirit of the New Regulatory Framework in Europe, where encouraging facility based competition (wherever possible) is a key policy objective. In this framework, according to the principles of cost orientation and technology neutrality, it is also suitable to assess the pros and cons of the geographical deaveraging of the wholesale price of unbundling, while preserving equity.

Infrastrutture e servizi di telecomunicazione: quali opportunità di sviluppo, oltre la crisi?

Information and communications technologies lie at the heart of the financial bubble blown up in the year 2000. In this paper, we analyse the main features of this financial crisis and their implications on the relevant industries and on the whole economy. Our primary aim is to highlight the causal relationships and feedbacks between the evolution of the regulatory framework and industry structures on the one side, and the turbulence of financial markets, on the other side. We believe that one of the most important real effects of the financial crisis is related to slowing the pace of market competition progress. This may be due to underestimating the structural entry barriers in these industries while financial markets flourished. Now, incumbents have strong incentives to pursue anti-competitive strategies and there is a not negligible chance that the liberalization process will fail. In this framework, this paper analyses entry strategies based on unbundling and discusses the regulatory and antitrust policies necessary to prevent these negative outcomes.

Drug innovation, price controls, and parallel trade

We study the long-run welfare effects of parallel trade (PT) in pharmaceuticals. We develop a two-country model of PT with endogenous quality, where the pharmaceutical firm negotiates the price of the drug with the government in the foreign country. We show that, even though the foreign government does not consider global R&D costs, (the threat of) PT improves the quality of the drug as long as the foreign consumers’ valuation of quality is high enough. We find that the firm’s short-run profit may be higher when PT is allowed. Nonetheless, this is neither necessary nor sufficient for improving drug quality in the long run. We also show that improving drug quality is a sufficient condition for PT to increase global welfare. Finally, we show that, when PT is allowed, drug quality may be higher with than without price controls.

Facility management outsourcing through multi-attribute auctions

We introduce a multi-attribute auction-based mechanism with an endogenous score as a means to innovate the procurement of facility management (FM) activities in private and public sectors. The mechanism allows the procurer to request bids on several measurable technical and economic attributes of the supply of FM services. The procurer also assigns weights to such features to signal their importance to the sellers, while the score obtained with respect to each attribute is endogenously determined on the basis of the submitted offers for the attribute. The proposed mechanism mitigates the most relevant drawbacks due to the lack of skills and of crucial information on the outsourced non-core activities, while requiring the procurer very little auction design effort. On the one hand, the mechanism can extract from suppliers valuable private technical knowledge as well as the information on the supply cost. On the other hand, it saves the procurer from detailing ex ante both the score which will be assigned to any possible bid for every attribute and the exact value to require for any technical feature of the supply.

Uniform Pricing and Product Innovation

Abstract We consider the rationale for imposing uniform pricing (UP) on a monopolist in a two-market model with endogenous quality. In contrast to the literature, we find that UP may yield higher quality than third-degree price discrimination (PD). This occurs when the demand dispersion between markets is sufficiently decreasing with quality. A simple test for a higher quality under UP is to check whether an increase in quality reduces the price differential between markets under PD. In this case, a higher quality under UP is an effective substitute for PD to extract consumer surplus. When the demand dispersion is small enough, a higher quality under UP increases social welfare relative to PD.

Vertical Control and Parallel Trade under Asymmetric Information

Parallel trade (PT) is a practice related to arbitrage operations in international trade. We provide a rationale for PT as an opportunistic behaviour by an international wholesaler who is privately informed about market demands in two countries where a multinational firm operates. This alternative theory of PT contributes to an explanation of why PT has gained considerable importance in various industries, and why it has not yet resulted in price convergence across relevant countries. Indeed, we find that asymmetric information enlarges the scope for PT, relative to complete information, and possibly increases crosscountry differences in prices. The European Commission supports PT as a means to achieve the integration of national markets, to the benefit of all citizens. However, under asymmetric information, consumers benefit from PT only with a high volume of parallel imports (e.g., when arbitrage costs are low); otherwise competition among wholesalers can be an effective substitute for PT. Furthermore, an important implication of PT is the transfer of profits from the manufacturer to the wholesaler. Therefore, in R&D-intensive industries, such as pharmaceuticals, policy makers should anticipate the likely consequences of PT under asymmetric information on the long-run incentives to innovate.

Can access regulation promote broadband investment and consumer welfare

A facility-based firm invests in network quality and sells wholesale local access to two competing downstream firms, which offer vertically differentiated value-added services. We show that, contrary to common wisdom, access price regulation may simultaneously improve consumer welfare and foster investment incentives compared with regulatory forbearance. This result is robust to a number of different model specifications: (i) the bottleneck owner is vertically integrated, and: (a) the regulator can commit before the investment stage, or: (b) there are first-mover advantages, such as consumer switching costs; (ii) the bottleneck owner is vertically separated. We also show that, under access price regulation, consumer welfare and network quality may be higher under vertical separation than under vertical integration.