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Unbundling and Incumbent Investment in Quality Upgrades and Cost Reduction

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Author Info
João Vareda () (Autoridade da Concorrência)
Abstract

We study the investment of a telecommunications incumbent in quality and in cost reduction when an entrant can use its network through unbundling of the local loop. We fi?nd that unbundling may lower incentives for quality improvements, but raises incentives for cost reduction. Therefore, it is not true that all types of investment are crowded out with unbundling. If the regulator can commit to a socially optimal unbundling price before investment, the incumbent makes both types of investment. In the absence of commitment, the incumbent will not invest, so that unbundling regulation may lower welfare as compared to no regulation.

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File URL: http://www.concorrencia.pt/download/WP31_unbundling.pdf
File Format: application/pdf
File Function: First version, 2007
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Publisher Info
Paper provided by Portuguese Competition Authority in its series Working Papers with number 31.

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Date of creation: Nov 2007
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Handle: RePEc:pca:wpaper:31

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Related research
Keywords: Access Pricing Telecommunications Regulation Unbundling Investments Quality upgrades Cost reduction Commitment

Find related papers by JEL classification:
D92 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Firm Choice and Growth, Investment, or Financing
L43 - Industrial Organization - - Antitrust Issues and Policies - - - Legal Monopolies and Regulation or Deregulation
L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications

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References listed on IDEAS
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.:
  1. Bourreau, Marc & Dogan, Pinar, 2005. "Unbundling the local loop," European Economic Review, Elsevier, vol. 49(1), pages 173-199, January. [Downloadable!] (restricted)
  2. Cambini, Carlo & Valletti, Tommaso M., 2004. "Access charges and quality choice in competing networks," Information Economics and Policy, Elsevier, vol. 16(3), pages 391-409, September. [Downloadable!] (restricted)
  3. Biglaiser, Gary & Ma, Ching-To Albert, 1999. "Investment Incentives of a Regulated Dominant Firm," Journal of Regulatory Economics, Springer, vol. 16(3), pages 215-35, November. [Downloadable!] (restricted)
    Other versions:
  4. Bijl, P.W.J. de & Peitz, M., 2004. "Unbundling the local loop : one-way access and imperfect competition," Discussion Paper 25, Tilburg University, Tilburg Law and Economic Center. [Downloadable!]
  5. Graeme Guthrie, 2006. "Regulating Infrastructure: The Impact on Risk and Investment," Journal of Economic Literature, American Economic Association, vol. 44(4), pages 925-972, December.
  6. Bastos Vareda, João Miguel & Hoernig, Steffen, 2007. "The Race for Telecoms Infrastructure Investment with Bypass: Can Access Regulation Achieve the First-best?," CEPR Discussion Papers 6203, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  7. Kotakorpi, Kaisa, 2006. "Access price regulation, investment and entry in telecommunications," International Journal of Industrial Organization, Elsevier, vol. 24(5), pages 1013-1020, September. [Downloadable!] (restricted)
  8. Spence, Michael, 1976. "Product Differentiation and Welfare," American Economic Review, American Economic Association, vol. 66(2), pages 407-14, May. [Downloadable!] (restricted)
  9. Foros, Oystein, 2004. "Strategic investments with spillovers, vertical integration and foreclosure in the broadband access market," International Journal of Industrial Organization, Elsevier, vol. 22(1), pages 1-24, January. [Downloadable!] (restricted)
  10. Cabral, Luis M B & Riordan, Michael H, 1989. "Incentives for Cost Reduction under Price Cap Regulation," Journal of Regulatory Economics, Springer, vol. 1(2), pages 93-102, June.
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Cited by:
(explanations, 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.)

  1. João Vareda, 2007. "Access Regulation under Asymmetric Information about Demand," Working Papers 30, Portuguese Competition Authority. [Downloadable!]
  2. Michiel Bijlsma & Viktoria Kocsis & Victoria Shestalova & Gijsbert Zwart, 2008. "Vertical foreclosure, a policy framework," CPB Documents 157, CPB Netherlands Bureau for Economic Policy Analysis. [Downloadable!]
  3. Vareda, João, 2007. "Access Regulation under Asymmetric Information about Demand," FEUNL Working Paper Series wp525, Universidade Nova de Lisboa, Faculdade de Economia. [Downloadable!]
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