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Dynamic access pricing and investment in alternative infrastructures

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  • Avenali, Alessandro
  • Matteucci, Giorgio
  • Reverberi, Pierfrancesco
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    Abstract

    We analyze the impact of access price regulation on the entrants' investment in network quality. We consider a dynamic framework where developing an alternative infrastructure requires both time and a captive customer base. We show that a multi-period schedule where regulated access charges rise over time is critical to foster efficient infrastructure investment. Nonetheless, a sunset clause on regulation dilutes investment incentives. We also show that, in the absence of regulatory commitment, the time-dependent schedule may not be robust to sequential entry. Hence, to preserve investment by early entrants, access charges should depend both on time and the entry period, in such a way that each entrant is provided with the same dynamic access conditions. The relevance of these issues carries over to the prospective deployment of new access infrastructures, the so-called Next Generation Access networks.

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    Bibliographic Info

    Article provided by Elsevier in its journal International Journal of Industrial Organization.

    Volume (Year): 28 (2010)
    Issue (Month): 2 (March)
    Pages: 167-175

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    Handle: RePEc:eee:indorg:v:28:y:2010:i:2:p:167-175

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    Web page: http://www.elsevier.com/locate/inca/505551

    Related research

    Keywords: Access pricing Infrastructure investment Regulatory commitment Innovation incentives High-speed broadband;

    References

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    1. Cambini, Carlo & Valletti, Tommaso, 2003. "Investments and Network Competition," CEPR Discussion Papers 3829, C.E.P.R. Discussion Papers.
    2. de Bijl, Paul W. J. & Peitz, Martin, 2004. "Dynamic regulation and entry in telecommunications markets: a policy framework," Information Economics and Policy, Elsevier, vol. 16(3), pages 411-437, September.
    3. M. Bourreau & P. Dogan, . "Build or Buy Strategies in the Local Loop," Working Paper 33647, Harvard University OpenScholar.
    4. Robert S. Pindyck, 2004. "Mandatory Unbundling and Irreversible Investment in Telecom Networks," NBER Working Papers 10287, National Bureau of Economic Research, Inc.
    5. Gans, Joshua S, 2001. "Regulating Private Infrastructure Investment: Optimal Pricing for Access to Essential Facilities," Journal of Regulatory Economics, Springer, vol. 20(2), pages 167-89, September.
    6. Joshua S. Gans & Stephen P. King, 2004. "Access Holidays and the Timing of Infrastructure Investment," The Economic Record, The Economic Society of Australia, vol. 80(248), pages 89-100, 03.
    7. Dennis W. Carlton & Michael Waldman, 1998. "The Strategic Use of Tying to Preserve and Create Market Power in Evolving Industries," NBER Working Papers 6831, National Bureau of Economic Research, Inc.
    8. Distaso, Walter & Lupi, Paolo & Manenti, Fabio M., 2006. "Platform competition and broadband uptake: Theory and empirical evidence from the European union," Information Economics and Policy, Elsevier, vol. 18(1), pages 87-106, March.
    9. Foros, Oystein, 2004. "Strategic investments with spillovers, vertical integration and foreclosure in the broadband access market," International Journal of Industrial Organization, Elsevier, vol. 22(1), pages 1-24, January.
    10. M. Bourreau & P. Dogan, . "Unbundling the Local Loop," Working Paper 33648, Harvard University OpenScholar.
    11. Peitz, Martin, 2005. "Asymmetric access price regulation in telecommunications markets," European Economic Review, Elsevier, vol. 49(2), pages 341-358, February.
    12. Graeme Guthrie, 2006. "Regulating Infrastructure: The Impact on Risk and Investment," Journal of Economic Literature, American Economic Association, vol. 44(4), pages 925-972, December.
    13. Chen, Yongmin & Sappington, David E.M., 2009. "Designing input prices to motivate process innovation," International Journal of Industrial Organization, Elsevier, vol. 27(3), pages 390-402, May.
    14. Economides, Nicholas, 1998. "The incentive for non-price discrimination by an input monopolist," International Journal of Industrial Organization, Elsevier, vol. 16(3), pages 271-284, May.
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    Cited by:
    1. Bourreau, Marc & Cambini, Carlo & Dogan, Pinar, 2011. "Access Pricing, Competition, and Incentives to Migrate From "Old" to "New" Technology," Scholarly Articles 5098425, Harvard Kennedy School of Government.
    2. Romain Lestage & David Flacher, 2011. "Access Regulation and Welfare," TEMEP Discussion Papers 201185, Seoul National University; Technology Management, Economics, and Policy Program (TEMEP), revised Dec 2011.
    3. Balmer, Roberto, 2013. "Geographic Regulation and Cooperative Investment in Next Generation Broadband Networks - A Review of Recent Literature and Practical Cases," MPRA Paper 54080, University Library of Munich, Germany.
    4. Marc Bourreau & Joeffrey Drouard, 2014. "Progressive entry and the incentives to invest in alternative infrastructures," Journal of Regulatory Economics, Springer, vol. 45(3), pages 329-351, June.
    5. David Sappington & Dennis Weisman, 2012. "Regulating regulators in transitionally competitive markets," Journal of Regulatory Economics, Springer, vol. 41(1), pages 19-40, February.
    6. Fabio Manenti & Antonio Scialà, 2011. "Access Regulation, Entry, and Investment in Telecommunications," RSCAS Working Papers 2011/37, European University Institute.
    7. Alessandro Avenali & Anna D’Annunzio & Pierfrancesco Reverberi, 2013. "Bundling, Competition and Quality Investment: A Welfare Analysis," Review of Industrial Organization, Springer, vol. 43(3), pages 221-241, November.
    8. Martin CAVE & Antoine FOURNIER & Natalia SHUTOVA, 2012. "The Price of Copper and the Transition to Fibre," Communications & Strategies, IDATE, Com&Strat dept., vol. 1(85), pages 147-168, 1st quart.

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