Auctions for Concessions in Natural Monopoly Industries in the Context of Tariff Regulation

Tenders for infrastructure concessions are on the agenda in Russia. The theory of the competitive biddings for concessions originates from the idea of "competition for the field", further developed by H. Demsetz into the franchise bidding theory. But so far, tenders for concessions which took place in different infrastructure sectors have questioned whether the number of bidders was high enough to expect the results (tenders outcomes) predicted by Demsetz. In the article this question is answered basing on the theory of auctions with independent private values and with the price as a single selection criterion under different business strategies of the bidders. Some recommendations are proposed. The necessity as well as some limitations of usage of such tenders’ results for natural monopolists’ tariff regulation are shown.

Franchise Bidding for Postal Services in Rural Regions

In this paper, we develop a franchise bidding mechanism for postal services under the Universal Service Obligation (USO) in rural areas. For the collection and delivery of mail on rural routes and for small town counter operations, monopoly franchises are awarded. Deficits caused by the USO are balanced by transfers between the government and the incumbent postal operator, i.e. the franchiser. We analyze the efficiency properties of the mechanism and discuss the drawbacks when extending the mechanism to urban areas.