Network Competition and Entry Deterrence
AbstractWe develop a model of logit demand that extends to a multi-firm industry the traditional duopoly framework of network competition with access charges. Firstly, we show that, when incumbents do not face the threat of entry and compete in prices, they inefficiently establish the reciprocal access charge below cost. This inefficiency disappears if incumbents compete in utilities instead of prices. Secondly, we study how incumbents change their choices under the threat of entry when they determine an industry-wide (non-discriminatory) access charge. We show how incumbents may accommodate all possible entrants, only a group of them, or may completely deter entry. When entry deterrence is the preferred option, incumbents distort upwards the access charges.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5381.
Date of creation: Nov 2005
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Other versions of this item:
- L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-01-24 (All new papers)
- NEP-COM-2006-01-24 (Industrial Competition)
- NEP-CSE-2006-01-24 (Economics of Strategic Management)
- NEP-IND-2006-01-24 (Industrial Organization)
- NEP-MIC-2006-01-24 (Microeconomics)
- NEP-NET-2006-01-24 (Network Economics)
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