Service Bundling and the Role of Access Charge in the Broadband Internet Service Market
AbstractUsing the classical Hotelling model, this paper analyzes the incentive for a CATV service provider to bundle broadband internet services when entering the broadband internet services market. In addition, the effect of such service bundling by an entrant on the market incumbent with ownership over existing bottleneck facilities is analyzed. Furthermore, an access charge that maximizes social welfare is explored and determined. Two cases are considered: in the first case, the market is fully covered; and in the second case, the market is not fully covered. With full market coverage, an entrant has an incentive for service bundling if there is sufficient service differentiation. The entrant's bundling strategy reduces the incumbent's profit. In this case, the total social welfare is independent of the level of the access charge and only has an effect of redistributing the net surplus between consumers and the incumbent. With partial market coverage, the entrant has an incentive for service bundling at a low access charge. The incumbent's profit increases if the access charge is higher than the cost of access provisioning. In this case, the total social welfare is dependent on the level of access charge and the welfare maximizing access charge is less than the unit cost of providing access.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 3553.
Date of creation: Sep 2006
Date of revision:
cable TV; broadband internet service; bundling; access charge; convergence;
Find related papers by JEL classification:
- D45 - Microeconomics - - Market Structure and Pricing - - - Rationing; Licensing
- L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software
- K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
- L82 - Industrial Organization - - Industry Studies: Services - - - Entertainment; Media
- D42 - Microeconomics - - Market Structure and Pricing - - - Monopoly
- K23 - Law and Economics - - Regulation and Business Law - - - Regulated Industries and Administrative Law
- L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications
- L43 - Industrial Organization - - Antitrust Issues and Policies - - - Legal Monopolies and Regulation or Deregulation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-06-18 (All new papers)
- NEP-COM-2007-06-18 (Industrial Competition)
- NEP-IND-2007-06-18 (Industrial Organization)
- NEP-MIC-2007-06-18 (Microeconomics)
- NEP-NET-2007-06-18 (Network Economics)
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