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Regulation and Investment in Network Industries: Evidence from European Telecoms

  • Michał Grajek
  • Lars-Hendrik Röller

We provide evidence of an inherent trade-off between access regulation and investment incentives in telecommunications by using a comprehensive data set covering more than 70 fixed-line operators in 20 countries over 10 years. Our econometric model accommodates different investment incentives for incumbents and entrants, a strategic interaction of entrants' and incumbents' investments, and endogenous regulation. We find access regulation to have a negative effect on both total industry and individual carrier investment. Thus, promoting market entry by means of regulated access undermines incentives to invest in facilities-based competition. Moreover, we find evidence of a regulatory commitment problem: higher investments by incumbents encourage regulated access provision.

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File URL: http://dx.doi.org/10.1086/661196
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File URL: http://dx.doi.org/10.1086/661196
Download Restriction: Access to the online full text or PDF requires a subscription.

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Article provided by University of Chicago Press in its journal The Journal of Law and Economics.

Volume (Year): 55 (2012)
Issue (Month): 1 ()
Pages: 189 - 216

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Handle: RePEc:ucp:jlawec:doi:10.1086/661196
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