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The impact of different fibre access network technologies on cost, competition and welfare

Listed author(s):
  • Hoernig, Steffen
  • Jay, Stephan
  • Neumann, Karl-Heinz
  • Peitz, Martin
  • Plückebaum, Thomas
  • Vogelsang, Ingo

Using a novel approach to the evaluation of new network technologies that combines an engineering cost model with a differentiated multi-player oligopoly model with wholesale access regulation this article evaluates the choice among different Fibre-to-the-Home (FTTH) architectures. The cost modelling relies upon an engineering bottom-up approach that feeds into a competition model. For addressing competition the pyramid model was chosen, which is an extension of the Hotelling model to multiple firms/services. The paper solves for price setting Nash equilibria between an incumbent, wholesale-access-based entrants and cable as an additional fully integrated network competitor. Welfare tradeoffs are highlighted with respect to cost differences and QoS differences between the various FTTH architectures and between the modes of regulation. According to the analysis architectures that can be unbundled (and that allow for greater speeds) outperform, from a social welfare perspective, architectures that (realistically) allow only for bitstream access.

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File URL: http://www.sciencedirect.com/science/article/pii/S0308596111002230
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Article provided by Elsevier in its journal Telecommunications Policy.

Volume (Year): 36 (2012)
Issue (Month): 2 ()
Pages: 96-112

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Handle: RePEc:eee:telpol:v:36:y:2012:i:2:p:96-112
DOI: 10.1016/j.telpol.2011.12.003
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  1. Nitsche, Rainer & Wiethaus, Lars, 2011. "Access regulation and investment in next generation networks -- A ranking of regulatory regimes," International Journal of Industrial Organization, Elsevier, vol. 29(2), pages 263-272, March.
  2. João Vareda, 2007. "Unbundling and Incumbent Investment in Quality Upgrades and Cost Reduction," Working Papers 31, Portuguese Competition Authority.
  3. Laffont, Jean-Jacques & Tirole, Jean, 1994. "Access pricing and competition," European Economic Review, Elsevier, vol. 38(9), pages 1673-1710, December.
  4. Armstrong, Mark & Vickers, John, 1998. "The Access Pricing Problem with Deregulation: A Note," Journal of Industrial Economics, Wiley Blackwell, vol. 46(1), pages 115-121, March.
  5. Pindyck Robert S., 2007. "Mandatory Unbundling and Irreversible Investment in Telecom Networks," Review of Network Economics, De Gruyter, vol. 6(3), pages 1-25, September.
  6. Mandy David M. & Sharkey William W., 2003. "Dynamic Pricing and Investment from Static Proxy Models," Review of Network Economics, De Gruyter, vol. 2(4), pages 1-37, December.
  7. Hoernig, Steffen, 2014. "Competition between multiple asymmetric networks: Theory and applications," International Journal of Industrial Organization, Elsevier, vol. 32(C), pages 57-69.
  8. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
  9. von Ungern-Sternberg, Thomas, 1991. "Monopolistic Competition on the Pyramid," Journal of Industrial Economics, Wiley Blackwell, vol. 39(4), pages 355-368, June.
  10. Bourreau, Marc & Dogan, Pinar, 2004. "Service-based vs. facility-based competition in local access networks," Information Economics and Policy, Elsevier, vol. 16(2), pages 287-306, June.
  11. Keiichi Hori & Keizo Mizuno, 2009. "Competition schemes and investment in network infrastructure under uncertainty," Journal of Regulatory Economics, Springer, vol. 35(2), pages 179-200, April.
  12. Tilman Klumpp & Xuejuan Su, 2010. "Open Access and Dynamic Efficiency," American Economic Journal: Microeconomics, American Economic Association, vol. 2(2), pages 64-96, May.
  13. Degraba, Patrick, 2003. "A Bottleneck Input Supplier's Opportunity Cost of Competing Downstream," Journal of Regulatory Economics, Springer, vol. 23(3), pages 287-297, May.
  14. Yongmin Chen & Michael H. Riordan, 2007. "Price and Variety in the Spokes Model," Economic Journal, Royal Economic Society, vol. 117(522), pages 897-921, July.
  15. Ingo Vogelsang, 2003. "Price Regulation of Access to Telecommunications Networks," Journal of Economic Literature, American Economic Association, vol. 41(3), pages 830-862, September.
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