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Regulation and Investment in Network Industries: Evidence from European Telecoms

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  • Michał Grajek
  • Lars-Hendrik R�ller

Abstract

We provide evidence of an inherent trade-off between access regulation and investment incentives in telecommunications by using a comprehensive data set covering more than 70 fixed-line operators in 20 countries over 10 years. Our econometric model accommodates different investment incentives for incumbents and entrants, a strategic interaction of entrants’ and incumbents’ investments, and endogenous regulation. We find access regulation to have a negative effect on both total industry and individual carrier investment. Thus, promoting market entry by means of regulated access undermines incentives to invest in facilities-based competition. Moreover, we find evidence of a regulatory commitment problem: higher investments by incumbents encourage regulated access provision.

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Bibliographic Info

Article provided by University of Chicago Press in its journal The Journal of Law and Economics.

Volume (Year): 55 (2012)
Issue (Month): 1 ()
Pages: 189 - 216

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Handle: RePEc:ucp:jlawec:doi:10.1086/661196

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References

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Citations

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Cited by:
  1. Evans, Lewis & Hahn, Robert W., 2010. "Regulating Dynamic Markets: Progress in Theory and Practice," Working paper 606, Regulation2point0.
  2. Joan Calzada & Fernando Martínez, 2013. "“Broadband prices in the European Union: competition and commercial strategies”," IREA Working Papers 201309, University of Barcelona, Research Institute of Applied Economics, revised May 2013.
  3. Gugler, Klaus & Rammerstorfer, Margarethe & Schmitt, Stephan, 2013. "Ownership unbundling and investment in electricity markets — A cross country study," Energy Economics, Elsevier, vol. 40(C), pages 702-713.
  4. Okamoto, Yoshikazu & Nakamura, Akihiro, 2013. "The influence of local loop unbundling on investment by incumbent telecommunications operators in the OECD member countries," 24th European Regional ITS Conference, Florence 2013 88499, International Telecommunications Society (ITS).
  5. Naoaki Minamihashi, 2012. "Natural Monopoly and Distorted Competition: Evidence from Unbundling Fiber-Optic Networks," Working Papers 12-26, Bank of Canada.
  6. Carlo Cambini & Laura Rondi, 2009. "Access Regulation, Financial Structure and Investment in Vertically Integrated Utilities: Evidence from EU Telecoms," EUI-RSCAS Working Papers 68, European University Institute (EUI), Robert Schuman Centre of Advanced Studies (RSCAS).
  7. Chalmeau, Olivier, 2013. "Determinants of European telecommunication operators systematic risk," 24th European Regional ITS Conference, Florence 2013 88495, International Telecommunications Society (ITS).
  8. Brito Duarte & Pereira Pedro & Vareda João, 2013. "Investment, Dynamic Consistency and the Sectoral Regulator’s Objective," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 13(2), pages 563-594, August.
  9. Briglauer, Wolfgang, 2013. "The impact of regulation and competition on the adoption of fibre-based broadband services: Recent evidence from the European Union member states," 24th European Regional ITS Conference, Florence 2013 88494, International Telecommunications Society (ITS).
  10. David Sappington & Dennis Weisman, 2010. "Price cap regulation: what have we learned from 25 years of experience in the telecommunications industry?," Journal of Regulatory Economics, Springer, vol. 38(3), pages 227-257, December.
  11. Jacques PELKMANS & Andrea RENDA, 2011. "Single eComms Market? No Such Thing…," Communications & Strategies, IDATE, Com&Strat dept., vol. 1(82), pages 21-42, 2nd quart.
  12. Cave, Martin, 2013. "Extending competition in network industries: Can input markets circumvent the need for an administered access regime?," Utilities Policy, Elsevier, vol. 27(C), pages 82-92.
  13. David Sappington & Dennis Weisman, 2012. "Regulating regulators in transitionally competitive markets," Journal of Regulatory Economics, Springer, vol. 41(1), pages 19-40, February.
  14. Jacques Pelkmans & Andrea Renda, 2010. "Single eComms Market? No Such Thing..," Bruges European Economic Policy Briefings 22, European Economic Studies Department, College of Europe.
  15. Isabel Soares & Paula Sarmento, 2012. "Unbundling in the Telecommunications and the Electricity Sectors: How Far should it Go?," European Research Studies Journal, European Research Studies Journal, vol. 0(Special I), pages 157-194.
  16. Zenhaeuserna, Patrick & Schneiderb, Yves, 2012. "Polynomics telecommunication regulation index 2012," 23rd European Regional ITS Conference, Vienna 2012 60399, International Telecommunications Society (ITS).
  17. Ingo Vogelsang, 2010. "Incentive Regulation, Investments and Technological Change," CESifo Working Paper Series 2964, CESifo Group Munich.
  18. Howell, Bronwyn, 2012. "Competition and Regulation Policy in Antipodean Government-Funded UltraFast Fibre Broadband Markets," Working Paper Series 2787, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.
  19. Paul de Bijl, 2011. "Broadband Policy in the Light of the Dutch Experience with Telecommunications Liberalization," CPB Discussion Paper 169, CPB Netherlands Bureau for Economic Policy Analysis.

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