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

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Author Info
Philip G. Gayle () (Department of Economics, Kansas State University)
Dennis L. Weisman (Department of Economics, Kansas State University)
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.

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Publisher Info
Article provided by Concept Economics in its journal Review of Network Economics.

Volume (Year): 6 (2007)
Issue (Month): 3 (September)
Pages: 321-341
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Handle: RePEc:rne:rneart:v:6:y:2007:i:3:p:321-341

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Related research
Keywords: Telecommunications; Build-or-Buy Decision; Innovation.;

Find related papers by 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

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. David E. M Sappington, 2005. "On the Irrelevance of Input Prices for Make-or-Buy Decisions," American Economic Review, American Economic Association, vol. 95(5), pages 1631-1638, December. [Downloadable!]
  2. Marc Bourreau & Pınar Doğan, 2006. ""Build-or-Buy" Strategies in the Local Loop," American Economic Review, American Economic Association, vol. 96(2), pages 72-76, May. [Downloadable!]
    Other versions:
  3. Armstrong, Mark, 2001. "The theory of access pricing and interconnection," MPRA Paper 15608, University Library of Munich, Germany. [Downloadable!]
  4. Kenneth Arrow, 1962. "Economic Welfare and the Allocation of Resources for Invention," NBER Chapters, in: The Rate and Direction of Inventive Activity: Economic and Social Factors, pages 609-626 National Bureau of Economic Research, Inc. [Downloadable!]
  5. Robert W. Crandall & Allan T. Ingraham & Hal J. Singer, 2004. "Do Unbundling Policies Discourage CLEC Facilities-Based Investment," The B.E. Journal of Economic Analysis & Policy, Berkeley Electronic Press, vol. 0(1). [Downloadable!]
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This page was last updated on 2009-12-12.

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