Network Investment and Competition with Access-to-Bypass
AbstractThis paper examines firms' incentive to make irreversible investments under an open access policy with stochastically growing demand. Using a simple model, we derive an access-to-bypass equilibrium. Analysis of the equilibrium confirms that the introduction of competition in network industries makes a firm's incentive to make investments greater than those of a monopolist. We then show that a change in access charges induces a trade-off in social welfare. That is, a decrease in the access charge expands a social benefit flow in the access duopoly, and deters not only the introduction of a new network facility, but also a positive network externality generated by the construction of an additional bypass network. The feasibility of the socially optimal investment timing is then discussed
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Bibliographic InfoPaper provided by Econometric Society in its series Econometric Society 2004 Australasian Meetings with number 138.
Date of creation: 11 Aug 2004
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Open access policy; Investment; Real options; Network facility; Access charge;
Find related papers by JEL classification:
- D92 - Microeconomics - - Intertemporal Choice - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
- L43 - Industrial Organization - - Antitrust Issues and Policies - - - Legal Monopolies and Regulation or Deregulation
- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-10-30 (All new papers)
- NEP-COM-2004-10-30 (Industrial Competition)
- NEP-REG-2004-10-30 (Regulation)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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FEUNL Working Paper Series
wp524, Universidade Nova de Lisboa, Faculdade de Economia.
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