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Can two-part tariffs promote efficient investment on next generation networks?

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  • Brito, Duarte
  • Pereira, Pedro
  • Vareda, João

Abstract

We analyze if two-part access tariffs solve the dynamic consistency problem of the regulation of next generation networks. We model the industry as a duopoly, where a vertically integrated incumbent and a downstream entrant, that requires access to the incumbent's network, compete on Hotelling's line. The incumbent can invest in the deployment of a next generation network that improves the quality of the retail services. We have three main results. First, we show that if the regulator can commit to a policy, a regulatory moratorium may emerge as socially optimal. Second, we show that if the regulator cannot commit to a policy, it can induce investment only when the investment cost is low. Third, we show that in this case, two-part tariffs involve very large payments from the entrant to the incumbent.

Suggested Citation

  • Brito, Duarte & Pereira, Pedro & Vareda, João, 2010. "Can two-part tariffs promote efficient investment on next generation networks?," International Journal of Industrial Organization, Elsevier, vol. 28(3), pages 323-333, May.
    • Handle: RePEc:eee:indorg:v:28:y:2010:i:3:p:323-333
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    More about this item

    Keywords

    Next generation networks Investment Regulation Dynamic consistency;

    JEL classification:

    • L43 - Industrial Organization - - Antitrust Issues and Policies - - - Legal Monopolies and Regulation or Deregulation
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications
    • L98 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Government Policy

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