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How does vertical industry structure affect investment in infrastructure quality?

Author

Listed:
  • Alessandro Avenali

    () (Dipartimento di Informatica e Sistemistica "Antonio Ruberti" Sapienza, Universita' di Roma)

  • Giorgio Matteucci

    () (Dipartimento di Informatica e Sistemistica "Antonio Ruberti" Sapienza, Universita' di Roma)

  • Pierfrancesco Reverberi

    () (Dipartimento di Informatica e Sistemistica "Antonio Ruberti" Sapienza, Universita' di Roma)

Abstract

If the access network is an economic bottleneck, then the regulator may consider vertical separation of the telecommunications incumbent. There is the concern that separation dilutes quality-enhancing network investment, and social welfare. We show that, despite some loss of operational coordination and potential hold-up problems, vertical separation may raise investment and welfare compared with integration. While structural more than functional separation raises investment, it is functional more than structural separation that raises welfare (due to investment cost). The results obtained shed light on the effects of different forms of separation on the incentive to build-out Next Generation Access networks (NGAs).

Suggested Citation

  • Alessandro Avenali & Giorgio Matteucci & Pierfrancesco Reverberi, 2010. "How does vertical industry structure affect investment in infrastructure quality?," DIS Technical Reports 2010-08, Department of Computer, Control and Management Engineering, Universita' degli Studi di Roma "La Sapienza".
  • Handle: RePEc:aeg:wpaper:2010-8
    as

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    File URL: http://www.dis.uniroma1.it/~bibdis/RePEc/aeg/wpaper/2010-08.pdf
    File Function: First version, 2010
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    References listed on IDEAS

    as
    1. Chen, Yongmin & Sappington, David E.M., 2009. "Designing input prices to motivate process innovation," International Journal of Industrial Organization, Elsevier, vol. 27(3), pages 390-402, May.
    2. Stefan Buehler & Dennis Gärtner & Daniel Halbheer, 2006. "Deregulating Network Industries: Dealing with Price-quality Tradeoffs," Journal of Regulatory Economics, Springer, vol. 30(1), pages 99-115, July.
    3. Mancuso, Paolo & Reverberi, Pierfrancesco, 2003. "Operating costs and market organization in railway services. The case of Italy, 1980-1995," Transportation Research Part B: Methodological, Elsevier, vol. 37(1), pages 43-61, January.
    4. David Mandy & David Sappington, 2007. "Incentives for sabotage in vertically related industries," Journal of Regulatory Economics, Springer, vol. 31(3), pages 235-260, June.
    5. Buehler, Stefan & Schmutzler, Armin & Benz, Men-Andri, 2004. "Infrastructure quality in deregulated industries: is there an underinvestment problem?," International Journal of Industrial Organization, Elsevier, vol. 22(2), pages 253-267, February.
    6. Guthrie, Graeme, 2006. "Regulating Infrastructure: The Impact on Risk and Investment," Working Paper Series 3851, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.
    7. Felix Höffler & Sebastian Kranz, 2007. "Legal Unbundling can be a Golden Mean between Vertical Integration and Separation," Bonn Econ Discussion Papers bgse15_2007, University of Bonn, Germany.
    8. Graeme Guthrie, 2006. "Regulating Infrastructure: The Impact on Risk and Investment," Journal of Economic Literature, American Economic Association, vol. 44(4), pages 925-972, December.
    9. Armstrong, Mark, 2001. "The theory of access pricing and interconnection," MPRA Paper 15608, University Library of Munich, Germany.
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    Keywords

    Industry Infrastructure; Network; Regulation;

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