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Investments and Network Competition

Author

Listed:
  • Tommaso M. Valletti

    () (Imperial College London, CEPR)

  • Carlo Cambini

    () (Politecnico di Torino)

Abstract

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.

Suggested Citation

  • Tommaso M. Valletti & Carlo Cambini, 2005. "Investments and Network Competition," RAND Journal of Economics, The RAND Corporation, vol. 36(2), pages 446-468, Summer.
  • Handle: RePEc:rje:randje:v:36:y:2005:2:p:446-468
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    References listed on IDEAS

    as
    1. Economides, Nicholas, 1999. "Quality choice and vertical integration," International Journal of Industrial Organization, Elsevier, vol. 17(6), pages 903-914, August.
    2. de Bijl,Paul & Peitz,Martin, 2008. "Regulation and Entry into Telecommunications Markets," Cambridge Books, Cambridge University Press, number 9780521066631.
    3. 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.
    4. Armstrong, Mark, 2001. "The theory of access pricing and interconnection," MPRA Paper 15608, University Library of Munich, Germany.
    5. Armstrong, Mark, 1998. "Network Interconnection in Telecommunications," Economic Journal, Royal Economic Society, vol. 108(448), pages 545-564, May.
    6. Michael Carter & Julian Wright, 2003. "Asymmetric Network Interconnection," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 22(1), pages 27-46, February.
    7. Armstrong, M., 1996. "Network interconnection," Discussion Paper Series In Economics And Econometrics 9625, Economics Division, School of Social Sciences, University of Southampton.
    8. Gans, Joshua S. & King, Stephen P., 2001. "Using 'bill and keep' interconnect arrangements to soften network competition," Economics Letters, Elsevier, vol. 71(3), pages 413-420, June.
    9. Peitz, Martin, 2005. "Asymmetric access price regulation in telecommunications markets," European Economic Review, Elsevier, vol. 49(2), pages 341-358, February.
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    More about this item

    Keywords

    Monopolization; Horizontal Anticompetitive Practices Telecommunications interconnection; investment quality; telecommunication; two-way access charges;

    JEL classification:

    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications

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