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Competition between Vertically Integrated Networks: a Generalized Model

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  • Carlo Cambini
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    Abstract

    Using the Laffont, Rey and Tirole (1998) framework, a model of competition between vertically integrated telecommunications networks in a deregulated environment is developed. Two local operators compete in linear and non linear tariffs (i.e. two-part tariffs) in the subscribers market. In addition, they are integrated downstream in a potentially competitive sector (i.e. long distance sector) where they face competition of other firms which require (one way) access to local networks as an "essential facility". The purpose of the paper is to introduce a "downstream" competition in the usual framework of network competition and to focus on how the one way access charges are set in an oligopolistic market. In a mature phase of the industry, the presence of competition in both local and long distance sectors leads to lower local and long distance tariffs. The strategic role of the two-way and one-way access charges is pointed out, with particular reference to the effect that the reciprocal (two-way) access charge has on competition in the complementary sector. Finally, in case of competition in two-part tariffs, the paper investigates: 1) the asymmetric case in which only one network is integrated; 2) the entry process when the two local networks have different coverage. The results show how the level of the two-way and one-way access charges affects the "level playing field" between networks.

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    File URL: http://www.icer.it/docs/wp2000/cambini12000.pdf
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    Bibliographic Info

    Paper provided by ICER - International Centre for Economic Research in its series ICER Working Papers with number 01-2000.

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    Length: 39 pages
    Date of creation: Mar 2000
    Date of revision:
    Handle: RePEc:icr:wpicer:01-2000

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    Related research

    Keywords: Telecommunications; Interconnection; Integration; Competition Policy;

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    1. Armstrong, M. & Doyle, C. & Vickers, J., 1995. "The access pricing problem: a synthesis," Discussion Paper Series In Economics And Econometrics 9532, Economics Division, School of Social Sciences, University of Southampton.
    2. Nicholas Economides & Lawrence J. White, 1995. "Access and Interconnection Pricing: How Efficient is the Efficient Component Pricing Rule?," Working Papers 95-04, New York University, Leonard N. Stern School of Business, Department of Economics.
    3. Armstrong, Mark, 1997. "Competition in Telecommunications," Oxford Review of Economic Policy, Oxford University Press, vol. 13(1), pages 64-82, Spring.
    4. Nicholas Economides & Giuseppe Lopomo & Glenn Woroch, 2005. "Strategic Commitments and the Principle of Reciprocity in Interconnection Pricing," Working Papers 05-10, New York University, Leonard N. Stern School of Business, Department of Economics.
    5. Federico Mini, 1999. "The Role of Incentives for Opening Monopoly Markets: Comparing GTE and RBOC Cooperation with Local Entrants," Industrial Organization 9907004, EconWPA.
    6. Armstrong, Mark, 1998. "Network Interconnection in Telecommunications," Economic Journal, Royal Economic Society, vol. 108(448), pages 545-64, May.
    7. Valletti, Tommaso M., 1999. "A model of competition in mobile communications," Information Economics and Policy, Elsevier, vol. 11(1), pages 61-72, March.
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