This paper provides a simple model that examines a firmfs incentive to invest in a network infrastructure through coalition formation in an open access environment with a deregulated retail market. A regulator faces a dilemma between inducing an incentive for efficient investment and reducing the distortion generated by imperfect competition. We show that, in such a case, the degree of cost-reducing effect of the investment is crucial from a welfare point of view. In particular, when network investment through coalition formation creates a large (small) cost-reducing effect, the regulator can (should not) delegate an investment decision to firms with an appropriate level of access charge.
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Publisher Info
Paper provided by School of Economics, Kwansei Gakuin University in its series Discussion Paper Series with number
28.
Length: 24 pages Date of creation: Jan 2006 Date of revision:
Jan 2006 Publication status: Published in Journal of Economics, 2006, vol. 88, issue 3, pages 243-261 Handle: RePEc:kgu:wpaper:28
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