Margin Squeeze in Fixed-Network Telephony Markets – competitive or anticompetitive?
AbstractThis paper looks at the effects of different forms of wholesale and retail regulation on retail competition in fixed network telephony markets. We explicitly model two asymmetries between the incumbent operator and the entrant: (i) While the incumbent has zero marginal costs, the entrant has the wholesale access charge as (positive) marginal costs; (ii) While the incumbent is setting a two-part tariff at the retail level (fixed fee and calls price), the entrant can only set a linear price for calls. Competition from other infrastructures such as mobile telephony or cable is modelled as an ‘outside opportunity’ for consumers. We find that a horizontally differentiated entrant with market power may be subject to a margin squeeze due to double marginalization but will never be completely foreclosed. Entrants without market power might be subject to a margin squeeze if the wholesale access price is set at average costs and competitive pressure from other infrastructures increases. We argue that a wholesale price regulation at average costs is not optimal in such a situation and discuss retail minus and deregulation as potential alternatives.
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Bibliographic InfoPaper provided by Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung) in its series MAGKS Papers on Economics with number 200827.
Length: 39 pages
Date of creation: 2008
Date of revision:
Publication status: Forthcoming in
access regulation; foreclosure; margin squeeze; telecommunications; fixed networks;
Other versions of this item:
- Briglauer Wolfgang & Götz Georg & Schwarz Anton, 2011. "Margin Squeeze in Fixed-Network Telephony Markets -- Competitive or Anticompetitive?," Review of Network Economics, De Gruyter, vol. 10(4), pages 1-21, December.
- L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
- L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
- L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts
- L50 - Industrial Organization - - Regulation and Industrial Policy - - - General
- L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-12-07 (All new papers)
- NEP-COM-2008-12-07 (Industrial Competition)
- NEP-MIC-2008-12-07 (Microeconomics)
- NEP-NET-2008-12-07 (Network Economics)
- NEP-REG-2008-12-07 (Regulation)
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- Götz, Georg, 2011.
"Competition, regulation and broadband access to the internet,"
22nd European Regional ITS Conference, Budapest 2011: Innovative ICT Applications - Emerging Regulatory, Economic and Policy Issues
52166, International Telecommunications Society (ITS).
- Georg Götz, 2009. "Competition, Regulation, and Broadband Access to the Internet," MAGKS Papers on Economics 200924, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
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