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Should Uniform Pricing Contraints be Imposed on Entrants?

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  • Hoernig, Steffen

Abstract

This paper analyses the effects of universal service obligations, such as uniform pricing, coverage constraints and price caps, on markets newly opened to competition, e.g. broadband services. We show that the requirement of uniform pricing has strong repercussions on coverage decisions. Imposed on the incumbent only, it may distort his coverage decision downward to avoid duopoly entry. If also imposed on entrants it increases the likelihood that entry leads to independent monopolies rather than competition. A large enough coverage constraint on the incumbent re-establishes incentives for duopoly entry, but may lead to higher prices.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5052.

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Date of creation: May 2005
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Handle: RePEc:cpr:ceprdp:5052

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Related research

Keywords: coverage constraints; entry; price caps; uniform pricing; universal service obligations;

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References

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  1. Anton, James J. & Vander Weide, James H. & Vettas, Nikolaos, 2002. "Entry auctions and strategic behavior under cross-market price constraints," International Journal of Industrial Organization, Elsevier, vol. 20(5), pages 611-629, May.
  2. Hoerning, Steffen, 2002. "Should Uniform Pricing Constraints be Imposed on Entrants?," FEUNL Working Paper Series wp417, Universidade Nova de Lisboa, Faculdade de Economia.
  3. Hoernig, Steffen, 2005. "Should Uniform Pricing Contraints be Imposed on Entrants?," CEPR Discussion Papers 5052, C.E.P.R. Discussion Papers.
  4. Fudenberg, Drew & Tirole, Jean, 1984. "The Fat-Cat Effect, the Puppy-Dog Ploy, and the Lean and Hungry Look," American Economic Review, American Economic Association, vol. 74(2), pages 361-66, May.
  5. S. Baranzoni & P. Bianchi & L. Lambertini, 2000. "Market Structure," Working Papers 368, Dipartimento Scienze Economiche, Universita' di Bologna.
  6. Foros, Oystein & Kind, Hans Jarle, 2003. "The Broadband Access Market: Competition, Uniform Pricing and Geographical Coverage," Journal of Regulatory Economics, Springer, vol. 23(3), pages 215-35, May.
  7. Hoernig, Steffen & Pita Barros, Pedro Luis & Valletti, Tommaso, 2001. "Universal Service and Entry: the Role of Uniform Pricing and Coverage Constraints," CEPR Discussion Papers 2789, C.E.P.R. Discussion Papers.
  8. Jean-Jacques Laffont & Jean Tirole, 2001. "Competition in Telecommunications," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262621509, December.
  9. Faulhaber, Gerald R & Hogendorn, Christiaan, 2000. "The Market Structure of Broadband Telecommunications," Journal of Industrial Economics, Wiley Blackwell, vol. 48(3), pages 305-29, September.
  10. Armstrong, Mark & Vickers, John, 1993. "Price Discrimination, Competition and Regulation," Journal of Industrial Economics, Wiley Blackwell, vol. 41(4), pages 335-59, December.
  11. Chone, Philippe & Flochel, Laurent & Perrot, Anne, 2000. "Universal service obligations and competition," Information Economics and Policy, Elsevier, vol. 12(3), pages 249-259, September.
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Citations

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Cited by:
  1. Steffen Hoernig, 2006. "Should uniform pricing constraints be imposed on entrants?," Journal of Regulatory Economics, Springer, vol. 30(2), pages 199-216, 08.
  2. Antonio Estache & Liam Wren-Lewis, 2009. "Toward a Theory of Regulation for Developing Countries: Following Jean-Jacques Laffont's Lead," Journal of Economic Literature, American Economic Association, vol. 47(3), pages 729-70, September.
  3. Antonio Estache & L. Wren-Lewis, 2008. "Towards a Theory of Regulation for Developing Countries: Following Laffont's Lead," Working Papers ECARES 2008_018, ULB -- Universite Libre de Bruxelles.
  4. Marc Bourreau & Cambini Steffen, 2013. "Geographic Access Rules and Investments," RSCAS Working Papers 2013/28, European University Institute.
  5. Balmer, Roberto, 2013. "Geographic Regulation and Cooperative Investment in Next Generation Broadband Networks - A Review of Recent Literature and Practical Cases," MPRA Paper 54080, University Library of Munich, Germany.
  6. Flacher, David & Jennequin, Hugues, 2012. "Access regulation and geographic deployment of a new generation infrastructure," 19th ITS Biennial Conference, Bangkok 2012: Moving Forward with Future Technologies - Opening a Platform for All 72537, International Telecommunications Society (ITS).

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