Funding natural monopoly infrastructure expansion: auctions versus regulated uniform access prices

This paper characterizes equilibrium behavior in an auction where firms bid a unit price in order to fund and gain access to a new piece of infrastructure. Firms need access to this new infrastructure to sell their output in a competitive market. The new facility is built only if enough revenue is generated through the sale of access to the firms. We show by means of an example that this auction mechanism can dominate in terms of efficiency the standard mechanism where a uniform access price is determined ex-ante by a regulator.