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Strategic Investment under Open Access: Theory and Evidence

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  • Tilman Klumpp
  • Xuejuan Su

Abstract

type="main"> We examine the incentives of access-regulated firms to invest in infrastructure facilities they must share with competitors. We show that investment incentives can be decomposed into a non-strategic and a strategic part. The non-strategic part implies that investment depends positively on 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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  • Tilman Klumpp & Xuejuan Su, 2015. "Strategic Investment under Open Access: Theory and Evidence," Journal of Industrial Economics, Wiley Blackwell, vol. 63(3), pages 495-521, September.
    • Handle: RePEc:bla:jindec:v:63:y:2015:i:3:p:495-521
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    File URL: http://hdl.handle.net/10.1111/joie.12081
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    Cited by:

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    2. Fiocco, Raffaele & Guo, Dongyu, 2020. "Regulatory risk, vertical integration, and upstream investment," European Economic Review, Elsevier, vol. 128(C).
    3. Jochen Homann & Torsten J. Gerpott & Wolfgang Briglauer & Ingo Vogelsang & Jan Krämer & Iris Henseler-Unger & Lukas Wiewiorra, 2018. "Ausbau der digitalen Infrastruktur bis 2025: Welche Wege führen in die ›Gigabit-Gesellschaft‹?," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 71(07), pages 03-21, April.
    4. Chen, Zhihong & Chen, Zhiqi, 2024. "Impact of access regulation on investment reconsidered," Economic Modelling, Elsevier, vol. 136(C).

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    More about this item

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - 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

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