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Margin Squeeze in Fixed-Network Telephony Markets -- Competitive or Anticompetitive?

Author

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  • Briglauer Wolfgang

    (Vienna University of Economics and Business)

  • Götz Georg

    (Justus-Liebig-University Giessen)

  • Schwarz Anton

    (Rundfunk und Telekom Regulierungs-GmbH)

Abstract

This paper looks at the effects of different forms of wholesale and retail regulation on retail competition in fixed network telephony markets. We explicitly model two asymmetries between the incumbent operator and a group of homogenous entrants: (i) while the incumbent has zero marginal costs, the entrant has the wholesale access charge as (positive) marginal costs; (ii) while the incumbent sets a two-part tariff at the retail level (fixed fee and calls price), the entrant can only set a linear price for calls. We model the product of the incumbent as horizontally differentiated from the products of the entrants, who are homogenous and do not have any market power. Competition from other infrastructures such as mobile telephony or cable is modelled as an "outside opportunity" for consumers. We find that entrants without market power might be subject to a margin squeeze if the wholesale access price is set at average costs and competitive pressure from other infrastructures increases. We argue that wholesale price regulation at average costs is not optimal in such a situation and discuss other forms of cost-based regulation, retail-minus and deregulation as potential alternatives.

Suggested Citation

  • Briglauer Wolfgang & Götz Georg & Schwarz Anton, 2011. "Margin Squeeze in Fixed-Network Telephony Markets -- Competitive or Anticompetitive?," Review of Network Economics, De Gruyter, vol. 10(4), pages 1-21, December.
  • Handle: RePEc:bpj:rneart:v:10:y:2011:i:4:n:3
    DOI: 10.2202/1446-9022.1257
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    Cited by:

    1. Götz, Georg, 2013. "Competition, regulation, and broadband access to the internet," Telecommunications Policy, Elsevier, vol. 37(11), pages 1095-1109.
    2. Gaudin, Germain & Saavedra, Claudia, 2014. "Ex ante margin squeeze tests in the telecommunications industry: What is a reasonably efficient operator?," Telecommunications Policy, Elsevier, vol. 38(2), pages 157-172.
    3. Krämer, Jan & Schnurr, Daniel, 2018. "Margin squeeze regulation and infrastructure competition," Information Economics and Policy, Elsevier, vol. 45(C), pages 30-46.
    4. Horstmann, Niklas & Krämer, Jan & Schnurr, Daniel, 2015. "Upstream Competition and Open Access Regimes: Experimental Evidence," 26th European Regional ITS Conference, Madrid 2015 127149, International Telecommunications Society (ITS).
    5. Thomas Wein, 2014. "Preventing Margin Squeeze: An Unsolvable Puzzle for Competition Policy? The Case of the German Gasoline Market," Working Paper Series in Economics 309, University of Lüneburg, Institute of Economics.

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    More about this item

    Keywords

    access regulation; margin squeeze; telecommunications; fixed networks;
    All these keywords.

    JEL classification:

    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts
    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General
    • L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications

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