Strategic Investments under Open Access: Theory and Evidence
AbstractWe examine the incentives of access-regulated firms to invest in infrastructure facilities they must share with competitors. The non-strategic incentives imply that investment depends positively on the market size. The strategic incentives imply that investment also depends on market composition, namely, the market shares of the facility owner and its competitors. Using a dataset of regulated electric utilities in the United States, we find evidence that transmission investments are indeed made strategically. Ceteris paribus, utilities are less likely to invest, and investment levels are lower, when competitors occupy a larger share of the market.
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Bibliographic InfoPaper provided by University of Alberta, Department of Economics in its series Working Papers with number 2013-2.
Length: 30 pages
Date of creation: 01 Jan 2013
Date of revision:
infrastructure investment; network industries; open access; access regulation; electricity wholesale market;
Find related papers by JEL classification:
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
- D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- K23 - Law and Economics - - Regulation and Business Law - - - Regulated Industries and Administrative Law
- L43 - Industrial Organization - - Antitrust Issues and Policies - - - Legal Monopolies and Regulation or Deregulation
- L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-02-03 (All new papers)
- NEP-CDM-2013-02-03 (Collective Decision-Making)
- NEP-COM-2013-02-03 (Industrial Competition)
- NEP-ENE-2013-02-03 (Energy Economics)
- NEP-IND-2013-02-03 (Industrial Organization)
- NEP-REG-2013-02-03 (Regulation)
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