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Efficiency Trade-Offs in the Design of Competition Policy for the Telecommunications Industry

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  • Gayle Philip G.

    (Department of Economics, Kansas State University, Manhattan)

  • Weisman Dennis L.

    (Department of Economics, Kansas State University, Manhattan)

Abstract

Trade-offs between imitation and innovation create natural tensions in the design of competition policy for the telecommunications industry. We explore the relationship between the prices of unbundled network elements (UNEs) and static/dynamic efficiency. We find that even when UNEs are priced to induce efficient make-or-buy decisions from a static perspective, mandatory unbundling reduces the incumbent's incentive to invest from a dynamic perspective. Moreover, while the literature focuses on disincentives for investment in innovation associated with low UNE prices, we find that raising prices for UNEs, when such prices preserve the efficient make-or-buy decision, can discourage investment in process innovation.

Suggested Citation

  • Gayle Philip G. & Weisman Dennis L., 2007. "Efficiency Trade-Offs in the Design of Competition Policy for the Telecommunications Industry," Review of Network Economics, De Gruyter, vol. 6(3), pages 1-21, September.
    • Handle: RePEc:bpj:rneart:v:6:y:2007:i:3:n:4
    DOI: 10.2202/1446-9022.1123
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    Cited by:

    1. Martyn Taylor, 2010. "Access Regulation versus Infrastructure Investment: Important Lessons from Australia," Chapters, in: Anastassios Gentzoglanis & Anders Henten (ed.), Regulation and the Evolution of the Global Telecommunications Industry, chapter 3, Edward Elgar Publishing.
    2. Krancke, Jan & Vidal, Miguel & Fier, Andreas, 2012. "Changing the rules: Applying a more economic approach to dynamic telecom markets," 23rd European Regional ITS Conference, Vienna 2012 66976, International Telecommunications Society (ITS).
    3. Markos Tselekounis & Dimitris Varoutas & Drakoulis Martakos, 2012. "On the social optimality of make-or-buy decisions," Journal of Regulatory Economics, Springer, vol. 41(2), pages 238-268, April.
    4. Carlo Cambini and Virginia Silvestri, 2012. "Technology Investment and Alternative Regulatory Regimes with Demand Uncertainty," RSCAS Working Papers 2012/15, European University Institute.

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