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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. Jean-Jacques Laffont & Patrick Rey & Jean Tirole, 1998. "Network Competition: I. Overview and Nondiscriminatory Pricing," RAND Journal of Economics, The RAND Corporation, vol. 29(1), pages 1-37, Spring.
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    5. Armstrong, Mark, 2001. "The theory of access pricing and interconnection," MPRA Paper 15608, University Library of Munich, Germany.
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    More about this item

    Keywords

    Monopolization; Horizontal Anticompetitive Practices Telecommunications interconnection; investment quality; telecommunication; two-way access charges;
    All these keywords.

    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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