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How does vertical industry structure affect investment in infrastructure quality?

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Author Info

  • Alessandro Avenali

    ()
    (Dipartimento di Informatica e Sistemistica "Antonio Ruberti" Sapienza, Universita' di Roma)

  • Giorgio Matteucci

    ()
    (Dipartimento di Informatica e Sistemistica "Antonio Ruberti" Sapienza, Universita' di Roma)

  • Pierfrancesco Reverberi

    ()
    (Dipartimento di Informatica e Sistemistica "Antonio Ruberti" Sapienza, Universita' di Roma)

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    Abstract

    If the access network is an economic bottleneck, then the regulator may consider vertical separation of the telecommunications incumbent. There is the concern that separation dilutes quality-enhancing network investment, and social welfare. We show that, despite some loss of operational coordination and potential hold-up problems, vertical separation may raise investment and welfare compared with integration. While structural more than functional separation raises investment, it is functional more than structural separation that raises welfare (due to investment cost). The results obtained shed light on the effects of different forms of separation on the incentive to build-out Next Generation Access networks (NGAs).

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    File URL: http://www.dis.uniroma1.it/~bibdis/RePEc/aeg/wpaper/2010-08.pdf
    File Function: First version, 2010
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    Bibliographic Info

    Paper provided by Department of Computer, Control and Management Engineering, Universita' degli Studi di Roma "La Sapienza" in its series DIS Technical Reports with number 2010-08.

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    Date of creation: Sep 2010
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    Handle: RePEc:aeg:wpaper:2010-8

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    Keywords: Industry Infrastructure; Network; Regulation;

    References

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    1. Cremer, Helmuth & Crémer, Jacques & De Donder, Philippe, 2006. "Legal vs Ownership Unbundling in Network Industries," IDEI Working Papers 405, Institut d'Économie Industrielle (IDEI), Toulouse.
    2. Stefan Buehler & Dennis Gaertner & Daniel Halbheer, 2004. "Deregulating Network Industries: Dealing with Price-Quality Tradeoffs," SOI - Working Papers 0402, Socioeconomic Institute - University of Zurich, revised Oct 2005.
    3. Armstrong, Mark, 2001. "The theory of access pricing and interconnection," MPRA Paper 15608, University Library of Munich, Germany.
    4. Benz, Men-Andri & Bühler, Stefan & Schmutzler, Armin, 2003. "Infrastructure Quality in Deregulated Industries: Is there an Underinvestment Problem?," CEPR Discussion Papers 3836, C.E.P.R. Discussion Papers.
    5. David Mandy & David Sappington, 2007. "Incentives for sabotage in vertically related industries," Journal of Regulatory Economics, Springer, vol. 31(3), pages 235-260, June.
    6. Mancuso, Paolo & Reverberi, Pierfrancesco, 2003. "Operating costs and market organization in railway services. The case of Italy, 1980-1995," Transportation Research Part B: Methodological, Elsevier, vol. 37(1), pages 43-61, January.
    7. 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.
    8. Felix Höffler & Sebastian Kranz, 2007. "Legal Unbundling can be a Golden Mean between Vertical Integration and Separation," Bonn Econ Discussion Papers bgse15_2007, University of Bonn, Germany.
    9. 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.
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