Competition and access price regulation in the broadband market
We construct a model for differentiated Cournot competition between service-based and infrastructure-based firms, out of which one infrastructure-based firm (the incumbent) supplies to the service-based firms. We seek for and compare the socially optimal and the incumbent’s profit maximizing access price in two scenarios: (i) service-based firms and incumbent supply homogeneous services (partial differentiation), and (ii) all services are horizontally differentiated (uniform differentiation). We show that in both cases the incumbent never forecloses service-based firms if infrastructure-based competition is present or if services are somewhat differentiated. Under uniform differentiation the welfare optimizing access price is below marginal cost, hence the incumbent subsidizes the production of service-based firms and makes zero profit. In the case of partial differentiation, the same result obtains when both markets are concentrated. However, if markets are not concentrated, the socially optimal access fee exceeds the marginal cost.
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- Jean-Jacques Laffont & Jean Tirole, 2001. "Competition in Telecommunications," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262621509, June.
- Ingo Vogelsang, 2003. "Price Regulation of Access to Telecommunications Networks," Journal of Economic Literature, American Economic Association, vol. 41(3), pages 830-862, September.
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- Michiel Bijlsma & Viktoria Kocsis & Victoria Shestalova & Gijsbert Zwart, 2008. "Vertical foreclosure: a policy framework," CPB Document 157, CPB Netherlands Bureau for Economic Policy Analysis.
- Bourreau, Marc & Hombert, Johan & Pouyet, Jérôme & Schutz, Nicolas, 2007.
"Wholesale Markets in Telecommunications,"
CEPR Discussion Papers
6224, C.E.P.R. Discussion Papers.
- Howell, Bronwyn, 2002. "Broadband Uptake and Infrastructure Regulation: Evidence from the OECD Countries," Working Paper Series 3899, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.
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