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Regulation and Internet Access in Germany

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  • Michael Reutter

Abstract

We explain the recent events in the German market for online access using a model of a regulated monopoly renting phone lines to retailers. Retailers offer either a linear or a flat tariff to consumers. Consumer heterogeneity leads to adverse selectiion. We show why market entry for flatrate firms is difficult under a linear wholesale tariff. With both a linear and a flat wholesale tariff the consumer market shows a mixture of tariffs as well. When marginal costs are zero it is optimal to have a wholesale flatrate only. However, marginal moves towards this equilibrium are not always welfare improving.

Suggested Citation

  • Michael Reutter, 2001. "Regulation and Internet Access in Germany," CESifo Working Paper Series 480, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_480
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    File URL: http://www.cesifo-group.de/DocDL/cesifo_wp480.pdf
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    References listed on IDEAS

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    1. Nicholas Economides, 1997. "The Economics of Networks," Brazilian Electronic Journal of Economics, Department of Economics, Universidade Federal de Pernambuco, vol. 1(0), December.
    2. Jeffrey K. MacKie-Mason & Hal Varian, 1994. "Economic FAQs About the Internet," Journal of Economic Perspectives, American Economic Association, vol. 8(3), pages 75-96, Summer.
    3. Paul Klemperer, 1995. "Competition when Consumers have Switching Costs: An Overview with Applications to Industrial Organization, Macroeconomics, and International Trade," Review of Economic Studies, Oxford University Press, vol. 62(4), pages 515-539.
    4. Mason, Robin, 2000. "Simple competitive Internet pricing," European Economic Review, Elsevier, vol. 44(4-6), pages 1045-1056, May.
    5. Wilson, Robert, 1997. "Nonlinear Pricing," OUP Catalogue, Oxford University Press, number 9780195115826.
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    Keywords

    Internet; flatrate; adverse selection;

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