Strategic Pricing and Entry under Universal Service and Cross-Market Price Constraints
AbstractRecent changes in telecommunications markets raise the issue of how price restrictions across markets impact strategic entry and pricing decisions. The Telecommunications Act of 1996 opens all telecommunications markets to competition and contains a provision for universal service, requiring that advanced services be made available to rural customers at rates comparable to those for urban customers. We develop a simple multi-market model which features an oligopolistic urban market, entry auctions for rural service, and a price restriction across markets, and analyze strategic pricing and entry choices. We show how these price restrictions induce a firm operating in both markets to become a "softer" competitor, thus placing the firm at a strategic disadvantage relative to urban markets competitors. However, once we account for entry incentives and recognize that firms may bid strategically for rural markets, we find that the downstream strategic disadvantage becomes advantageous, leading to higher prices and profits in both markets. We also identify when these price restrictions put outside firms, even relatively inefficient ones, at a strategic advantage in entry auctions.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Duke University, Department of Economics in its series Working Papers with number 99-04.
Date of creation: 1999
Date of revision:
Contact details of provider:
Postal: Department of Economics Duke University 213 Social Sciences Building Box 90097 Durham, NC 27708-0097
Phone: (919) 660-1800
Fax: (919) 684-8974
Web page: http://econ.duke.edu/
Other versions of this item:
- Anton, James J & Vander Weide, James H & Vettas, Nikolaos, 1998. "Strategic Pricing and Entry under Universal Service and Cross-Market Price Constraints," CEPR Discussion Papers 1922, C.E.P.R. Discussion Papers.
- L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
- L5 - Industrial Organization - - Regulation and Industrial Policy
- L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- 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.
- Marc Bourreau & Cambini Steffen, 2013.
"Geographic Access Rules and Investments,"
RSCAS Working Papers
2013/28, European University Institute.
- Mirabel, Francois & Poudou, Jean-Christophe, 2004.
"Mechanisms of funding for Universal Service Obligations: the electricity case,"
Elsevier, vol. 26(5), pages 801-823, September.
- Mirabel, F. & Poudou, J.-C., 2003. "Mechanisms of Funding for Universal Service Obligations: the Electricity Case," Cahiers du CREDEN (CREDEN Working Papers) 03.11.41, CREDEN (Centre de Recherche en Economie et Droit de l'Energie), Faculty of Economics, University of Montpellier 1.
- Chone, Philippe & Flochel, Laurent & Perrot, Anne, 2002. "Allocating and funding universal service obligations in a competitive market," International Journal of Industrial Organization, Elsevier, vol. 20(9), pages 1247-1276, November.
- Philippe Chone & Laurent Flochel & Anne Perrot, 2000.
"Allocating and Funding Universal Service Obligations in a Competitive Network Market,"
Econometric Society World Congress 2000 Contributed Papers
0213, Econometric Society.
- Philippe Choné & Laurent Flochel & Anne Perrot, 1999. "Allocating and Funding Universal Service Obligations in a Competitive Network Market," Working Papers 99-55, Centre de Recherche en Economie et Statistique.
- Chone, Philippe & Flochel, Laurent & Perrot, Anne, 2000. "Universal service obligations and competition," Information Economics and Policy, Elsevier, vol. 12(3), pages 249-259, September.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Department of Economics Webmaster).
If references are entirely missing, you can add them using this form.