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Natural Monopoly and Distorted Competition: Evidence from Unbundling Fiber-Optic Networks

  • Naoaki Minamihashi

Can regulation solve problems arising from a natural monopoly? This paper analyzes whether “unbundling,” referring to regulations that enforce sharing of natural monopolistic infrastructure, prevents entrants from building new infrastructure. It models and estimates a dynamic entry game to evaluate the effects of regulation, using a dataset for construction of fiber-optic networks in Japan. The counterfactual exercise shows that forced unbundling regulation leads to a 24% decrease in the incidence of new infrastructure builders. This suggests, therefore, that when a new technology is being diffused, regulation to remove a natural monopoly conversely involves risks that regulated monopolists’ shares will increase.

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File URL: http://www.bankofcanada.ca/wp-content/uploads/2012/08/wp2012-26.pdf
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Paper provided by Bank of Canada in its series Staff Working Papers with number 12-26.

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Length: 40 pages
Date of creation: 2012
Date of revision:
Handle: RePEc:bca:bocawp:12-26
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