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Access regulation under asymmetric information about the entrant's efficiency

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  • Vareda, João

Abstract

We study the impact of access regulation on an entrant's decision whether to invest in a telecommunications network or to ask for access when the regulator cannot observe its efficiency level. We show that an efficient entrant may have incentives to target low demand after entry in order to convince the regulator that it needs cheap access in the future. Therefore, the regulator must set access prices, contingent on demand, which penalize the inefficient entrant. We further show that, although linear prices are not always sufficient to promote the investment of an efficient entrant without introducing distortions, two-part tariffs already allow the regulator to achieve this objective.

Suggested Citation

  • Vareda, João, 2010. "Access regulation under asymmetric information about the entrant's efficiency," Information Economics and Policy, Elsevier, vol. 22(2), pages 192-199, May.
    • Handle: RePEc:eee:iepoli:v:22:y:2010:i:2:p:192-199
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    References listed on IDEAS

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    1. Caillaud, Bernard & Tirole, Jean, 2004. "Essential facility financing and market structure," Journal of Public Economics, Elsevier, vol. 88(3-4), pages 667-694, March.
    2. Joao Vareda & Steffen Hoernig, 2007. "The race for telecoms infrastructure investment with bypass: can access regulation achieve the first best?," Nova SBE Working Paper Series wp524, Universidade Nova de Lisboa, Nova School of Business and Economics.
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    7. Brito, Duarte & Pereira, Pedro & Vareda, João, 2010. "Can two-part tariffs promote efficient investment on next generation networks?," International Journal of Industrial Organization, Elsevier, vol. 28(3), pages 323-333, May.
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    9. Gans, Joshua S, 2001. "Regulating Private Infrastructure Investment: Optimal Pricing for Access to Essential Facilities," Journal of Regulatory Economics, Springer, vol. 20(2), pages 167-189, September.
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    Cited by:

    1. Marc Bourreau & Joeffrey Drouard, 2014. "Progressive entry and the incentives to invest in alternative infrastructures," Journal of Regulatory Economics, Springer, vol. 45(3), pages 329-351, June.
    2. Jeong-Yoo Kim & Sawoong Kang, 2014. "Entry Invoking," Korean Economic Review, Korean Economic Association, vol. 30, pages 247-271.
    3. Cambini, Carlo & Silvestri, Virginia, 2012. "Technology investment and alternative regulatory regimes with demand uncertainty," Information Economics and Policy, Elsevier, vol. 24(3), pages 212-230.

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