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Broadband Investment and the Threat of Regulation: Preventing Monopoly Exploitation or Infrastructure Construction?

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Author Info
Ulrich Blum (Halle Institute for Economic Research)
Christian Growitsch (Scientific Institute for Infrastructure and Communication Services WIK)
Niels Krap () (Halle Institute for Economic Research)

Additional information is available for the following registered author(s):

Abstract

Recently, investments in new generation networks in Germany have been curtailed, since potential investors required this new network be unregulated. To develop a regulator's strategy that allows investments to occur but prevents monopolistic prices, we model an investor's decision problem under a threat of regulation. We show that the mere threat of a regulator's intervention may prevent supernormal profits without actual price regulation. The regulator, on the other hand, can influence both the investment decision and the investor's price via her signals on regulation probability and price.

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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: 342-354
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Handle: RePEc:rne:rneart:v:6:y:2007:i:3:p:342-354

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Web page: http://www.rnejournal.com

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Related research
Keywords: Regulation investment telecommunication network industries next generation networks.

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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
L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications

References listed on IDEAS
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  1. Dixit, Avinash, 1991. "Irreversible Investment with Price Ceilings," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 541-57, June. [Downloadable!] (restricted)
  2. David J. Salant & Glenn A. Woroch, 1992. "Trigger Price Regulation," RAND Journal of Economics, The RAND Corporation, vol. 23(1), pages 29-51, Spring. [Downloadable!] (restricted)
  3. Ian M. Dobbs, 2004. "Intertemporal price cap regulation under uncertainty," Economic Journal, Royal Economic Society, vol. 114(495), pages 421-440, 04. [Downloadable!] (restricted)
  4. Glazer, Amihai & McMillan, Henry, 1992. "Pricing by the Firm under Regulatory Threat," The Quarterly Journal of Economics, MIT Press, vol. 107(3), pages 1089-99, August. [Downloadable!] (restricted)
  5. Jean-Daniel Saphores & Eric Gravel & Jean-Thomas Bernard, 2004. "Regulation and Investment under Uncertainty: An Application to Power Grid Interconnection," Journal of Regulatory Economics, Springer, vol. 25(2), pages 169-186, 03. [Downloadable!]
  6. Caroline Elliott & Melinda Acutt, 2001. "Threat-based regulation and endogenously determined punishments," Working Papers 000040, Lancaster University Management School, Economics Department. [Downloadable!]
  7. Baake, Pio & Kamecke, Ulrich & Wey, Christian, 2005. "A Regulatory Framework for New and Emerging Markets," MPRA Paper 2518, University Library of Munich, Germany. [Downloadable!]
  8. Evans, Lewis T. & Guthrie, Graeme A., 2005. "Risk, price regulation, and irreversible investment," International Journal of Industrial Organization, Elsevier, vol. 23(1-2), pages 109-128, February. [Downloadable!] (restricted)
  9. David M. Mandy & William W. Sharkey, 2003. "Dynamic Pricing and Investment from Static Proxy Models," Review of Network Economics, Concept Economics, vol. 2(4), pages 404-439, December. [Downloadable!]
  10. Gert Brunekreeft, 2004. "Regulatory Threat in Vertically Related Markets: The Case of German Electricity," European Journal of Law and Economics, Springer, vol. 17(3), pages 285-305, May. [Downloadable!] (restricted)
  11. Sappington, David E. M., 1986. "Commitment to regulatory bureaucracy," Information Economics and Policy, Elsevier, vol. 2(4), pages 243-258, December. [Downloadable!] (restricted)
  12. Stephen Littlechild, 2003. "Reflections on Incentive Regulation," Review of Network Economics, Concept Economics, vol. 2(4), pages 289-315, December. [Downloadable!]
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