IDEAS home Printed from https://ideas.repec.org/a/eee/ecolet/v211y2022ics0165176521004900.html
   My bibliography  Save this article

Co-investment deterrence

Author

Listed:
  • López, Ángel L.
  • Manganelli, Anton-Giulio
  • Martín-Rodríguez, María

Abstract

We examine co-investment and access in a model of new network deployment. We show that the incumbent firm may find it optimal to deter co-investment by over-investing when the cost-sharing rule is based on its verified expenditure and the information on the deployment cost is asymmetric between the operators and the regulator. When partial deterrence is optimal, it occurs in the areas of intermediate attractiveness, consistently with the evidence found in other industries. A necessary and sufficient condition for deterrence to occur is that local industry profits are lower with than without co-investment. Results are robust to demand uncertainty.

Suggested Citation

  • López, Ángel L. & Manganelli, Anton-Giulio & Martín-Rodríguez, María, 2022. "Co-investment deterrence," Economics Letters, Elsevier, vol. 211(C).
    • Handle: RePEc:eee:ecolet:v:211:y:2022:i:c:s0165176521004900
    DOI: 10.1016/j.econlet.2021.110263
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0165176521004900
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.econlet.2021.110263?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Hart, Oliver D & Moore, John, 1988. "Incomplete Contracts and Renegotiation," Econometrica, Econometric Society, vol. 56(4), pages 755-785, July.
    2. Hermalin, Benjamin E & Katz, Michael L, 1991. "Moral Hazard and Verifiability: The Effects of Renegotiation in Agency," Econometrica, Econometric Society, vol. 59(6), pages 1735-1753, November.
    3. Inderst, Roman & Peitz, Martin, 2014. "Investment under uncertainty and regulation of new access networks," Information Economics and Policy, Elsevier, vol. 26(C), pages 28-41.
    4. Bourreau, Marc & Cambini, Carlo & Hoernig, Steffen & Vogelsang, Ingo, 2021. "Co-investment, uncertainty, and opportunism:ex-Ante and ex-Post remedies," Information Economics and Policy, Elsevier, vol. 56(C).
    5. Salop, Steven C, 1979. "Strategic Entry Deterrence," American Economic Review, American Economic Association, vol. 69(2), pages 335-338, May.
    6. Leemore S. Dafny, 2005. "Games Hospitals Play: Entry Deterrence in Hospital Procedure Markets," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 14(3), pages 513-542, September.
    7. Glenn Ellison & Sara Fisher Ellison, 2011. "Strategic Entry Deterrence and the Behavior of Pharmaceutical Incumbents Prior to Patent Expiration," American Economic Journal: Microeconomics, American Economic Association, vol. 3(1), pages 1-36, February.
    8. Cabral, Luis M. B., 2000. "Introduction to Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262032864, December.
    9. A. Michael Spence, 1977. "Entry, Capacity, Investment and Oligopolistic Pricing," Bell Journal of Economics, The RAND Corporation, vol. 8(2), pages 534-544, Autumn.
    10. Bourreau, Marc & Cambini, Carlo & Hoernig, Steffen, 2018. "Cooperative investment, access, and uncertainty," International Journal of Industrial Organization, Elsevier, vol. 56(C), pages 78-106.
    11. Winston Maxwell & Marc Bourreau & Steffen Hoernig, 2020. "Implementing co-investment and network sharing," Working Papers hal-02882427, HAL.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. de Haas, Samuel & Herold, Daniel & Schäfer, Jan Thomas, 2022. "Entry deterrence due to brand proliferation: Empirical evidence from the German interurban bus industry," International Journal of Industrial Organization, Elsevier, vol. 83(C).
    2. Cesaltina Pacheco Pires & Margarida Catalão‐Lopes, 2020. "Does asymmetric information always help entry deterrence? Can it increase welfare?," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 29(3), pages 686-705, July.
    3. Marc Bourreau & Carlo Cambini & Steffen Hoernig & Ingo Vogelsang, 2020. "Fiber investment and access under uncertainty: long-term contracts, risk premia, and access options," Journal of Regulatory Economics, Springer, vol. 57(2), pages 105-117, April.
    4. Rabbani, Maysam, 2023. "Mergers with future rivals can boost prices, bar entry, and intensify market concentration," International Journal of Industrial Organization, Elsevier, vol. 88(C).
    5. Jeanjean, Francois, 2022. "Co-investment in the sharing of Telecommunications Infrastructures," 31st European Regional ITS Conference, Gothenburg 2022: Reining in Digital Platforms? Challenging monopolies, promoting competition and developing regulatory regimes 265636, International Telecommunications Society (ITS).
    6. J. Anthony Cookson, 2018. "Anticipated Entry and Entry Deterrence: Evidence from the American Casino Industry," Management Science, INFORMS, vol. 64(5), pages 2325-2344, May.
    7. Jens Dietrichson & Lina Maria Ellegård & Gustav Kjellsson, 2020. "Patient choice, entry, and the quality of primary care: Evidence from Swedish reforms," Health Economics, John Wiley & Sons, Ltd., vol. 29(6), pages 716-730, June.
    8. Qi, Shi, 2019. "Advertising, industry innovation, and entry deterrence," International Journal of Industrial Organization, Elsevier, vol. 65(C), pages 30-50.
    9. John Kwoka & Birzhan Batkeyev, 2019. "Strategic Responses to Competitive Threats: Airlines in Action," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 54(1), pages 83-109, February.
    10. Kariem Soliman, 2021. "Are Industrial Robots a new GPT? A Panel Study of Nine European Countries with Capital and Quality-adjusted Industrial Robots as Drivers of Labour Productivity Growth," EIIW Discussion paper disbei307, Universitätsbibliothek Wuppertal, University Library.
    11. Alan Schwartz, 2004. "The Law and Economics of Costly Contracting," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 20(1), pages 2-31, April.
    12. Bourreau, Marc & Cambini, Carlo & Hoernig, Steffen & Vogelsang, Ingo, 2021. "Co-investment, uncertainty, and opportunism:ex-Ante and ex-Post remedies," Information Economics and Policy, Elsevier, vol. 56(C).
    13. Olivier Meier & Aurélie Sannajust, 0. "The smart contract revolution: a solution for the holdup problem?," Small Business Economics, Springer, vol. 0, pages 1-16.
    14. Suhui Li & Avi Dor, 2013. "How Do Hospitals Respond to Market Entry? Evidence from A Deregulated Market for Cardiac Revascularization," NBER Working Papers 18926, National Bureau of Economic Research, Inc.
    15. Zoe Hitzig & Benjamin Niswonger, 2022. "Optimal Defaults, Limited Enforcement and the Regulation of Contracts," Papers 2203.01233, arXiv.org, revised May 2022.
    16. Tedi Skiti, 2017. "Entry Barriers and Technological Innovation in Broadband," Working Papers 17-11, NET Institute.
    17. Robert Evans, 2008. "Simple Efficient Contracts in Complex Environments," Econometrica, Econometric Society, vol. 76(3), pages 459-491, May.
    18. Lebourges, Marc & Liang, Julienne, 2018. "Estimating the impact of co-investment in fiber to the home coverage," 29th European Regional ITS Conference, Trento 2018 184953, International Telecommunications Society (ITS).
    19. Hillary Ekisa Nambanga & Jianpei Li, 2021. "Threat of Entry, Complete Information and Pricing," International Journal of Science and Business, IJSAB International, vol. 5(5), pages 161-182.
    20. Christopher Gedge & James W. Roberts & Andrew Sweeting, 2014. "A Model of Dynamic Limit Pricing with an Application to the Airline Industry," NBER Working Papers 20293, National Bureau of Economic Research, Inc.

    More about this item

    Keywords

    Access; Co-investment; Deterrence; Over-investments;
    All these keywords.

    JEL classification:

    • L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ecolet:v:211:y:2022:i:c:s0165176521004900. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/ecolet .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.