Optimal bypass and cream skimming.

Summary "This paper develops a normative model of regulatory policy toward bypass and cream-skimming. It analyses the effects of bypass on second-degree price discrimination, on the rent of the regulated firm and on the welfare of low-demand customers. It shows that pricing under marginal cost may be optimal for the regulated firm and excessive cream-skiming occurs if access to the bypass technology is not regulated and that the prohibition of bypass may increase or decrease the regulated firm's rent.".