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Investments and Network Competition

  • Tommaso M. Valletti

    ()

    (Imperial College London, CEPR)

  • Carlo Cambini

    ()

    (Politecnico di Torino)

We analyze the impact of two-way access charges on the incentives to invest in networks with different levels of quality. When quality has an impact on all calls initiated by customers (destined both on-net and off-net), we obtain a result of ``tacit collusion" even in a symmetric model with two-part pricing. Firms tend to underinvest in quality, and this is exacerbated if they can negotiate reciprocal termination charges above cost. When the quality of off-net calls depends on the interaction between the quality of the two networks, no network has an incentive to jump ahead of its rival by investing more.

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Article provided by The RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 36 (2005)
Issue (Month): 2 (Summer)
Pages: 446-468

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Handle: RePEc:rje:randje:v:36:y:2005:2:p:446-468
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  1. Peitz, Martin, 2005. "Asymmetric access price regulation in telecommunications markets," European Economic Review, Elsevier, vol. 49(2), pages 341-358, February.
  2. Armstrong, Mark, 2001. "The theory of access pricing and interconnection," MPRA Paper 15608, University Library of Munich, Germany.
  3. Michael Carter & Julian Wright, 2003. "Asymmetric Network Interconnection," Review of Industrial Organization, Springer, vol. 22(1), pages 27-46, February.
  4. Economides, Nicholas, 1999. "Quality choice and vertical integration," International Journal of Industrial Organization, Elsevier, vol. 17(6), pages 903-914, August.
  5. Armstrong, Mark, 1998. "Network Interconnection in Telecommunications," Economic Journal, Royal Economic Society, vol. 108(448), pages 545-64, May.
  6. Cambini, Carlo & Valletti, Tommaso M., 2003. "Network competition with price discrimination: 'bill-and-keep' is not so bad after all," Economics Letters, Elsevier, vol. 81(2), pages 205-213, November.
  7. Gans, J.S. & King, S.P., 2000. "Using 'Bill and Keep' Interconnect Arrangements to Soften Network Competiti on," Department of Economics - Working Papers Series 739, The University of Melbourne.
  8. Armstrong, M., 1996. "Network interconnection," Discussion Paper Series In Economics And Econometrics 9625, Economics Division, School of Social Sciences, University of Southampton.
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