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Co-Investment, Uncertainty, and Opportunism: Ex-Ante and Ex-Post Remedies

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Listed:
  • Marc Bourreau
  • Carlo Cambini
  • Steffen Hoernig
  • Ingo Vogelsang

Abstract

In this paper, we study the impact of co-investment by incumbents and entrants on the roll-out of network infrastructures under demand uncertainty. We show that if entrants can wait to co-invest until demand is realized, the incumbents’ investment incentives are reduced and total coverage can be lower than in a benchmark with earlier co-investment. We consider two remedies to correct these distortions: (i) co-investment options purchased ex-ante by entrants from incumbents, and (ii) risk premia paid ex-post by entrants. We show that co-investment options cannot fully reestablish total coverage, while premia can do so in most cases, though at the cost of less entry. Finally, we show that an appropriate combination of ex-ante and ex-post remedies can improve welfare.

Suggested Citation

  • Marc Bourreau & Carlo Cambini & Steffen Hoernig & Ingo Vogelsang, 2020. "Co-Investment, Uncertainty, and Opportunism: Ex-Ante and Ex-Post Remedies," CESifo Working Paper Series 8078, CESifo.
    • Handle: RePEc:ces:ceswps:_8078
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    Cited by:

    1. Marc Bourreau & Carlo Cambini & Steffen Hoernig & Ingo Vogelsang, 2020. "Fiber investment and access under uncertainty: long-term contracts, risk premia, and access options," Journal of Regulatory Economics, Springer, vol. 57(2), pages 105-117, April.
    2. López, Ángel L. & Manganelli, Anton-Giulio & Martín-Rodríguez, María, 2022. "Co-investment deterrence," Economics Letters, Elsevier, vol. 211(C).

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    More about this item

    Keywords

    co-investment; uncertainty; opportunism; options; risk premia;
    All these keywords.

    JEL classification:

    • L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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