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Universal Service and Entry: the Role of Uniform Pricing and Coverage Constraints

  • Barros, Pedro Luis Pita
  • Hoernig, Steffen
  • Valletti, Tommaso

Universal service objectives are pervasive in telecommunications, and have gained new relevance after liberalization and the introduction of competition in many markets. Despite their policy relevance, little work has been done allowing for a thorough discussion of instruments designed to achieve universal service objectives under competition. We intend to fill this gap, and consider various policy instruments, such as constraints on pricing and coverage. It is shown that these are not competitively neutral and may have far-reaching strategic effects. Equilibrium coverage of both incumbent and entrant may be lower than without regulation, and firms may even (noncooperatively) leave each others' markets to lessen competitive pressure in their remaining markets. These effects depend on which measures are imposed at the same time, thus no single measure can be evaluated in isolation. We also point out that different groups of consumers are affected in different ways, making welfare comparisons difficult.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 2789.

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Date of creation: May 2001
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Handle: RePEc:cpr:ceprdp:2789
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  1. Kyle Bagwell & Asher Wolinsky, 2000. "Game Theory and Industrial Organization," Discussion Papers 1307, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  2. Chone, Philippe & Flochel, Laurent & Perrot, Anne, 2000. "Universal service obligations and competition," Information Economics and Policy, Elsevier, vol. 12(3), pages 249-259, September.
  3. Milton L. Mueller, 1997. "Universal Service," Books, American Enterprise Institute, number 53006, 4.
  4. Nirvikar Singh & Xavier Vives, 1984. "Price and Quantity Competition in a Differentiated Duopoly," RAND Journal of Economics, The RAND Corporation, vol. 15(4), pages 546-554, Winter.
  5. Valletti, Tommaso M, 2000. "Minimum Quality Standards under Cournot Competition," Journal of Regulatory Economics, Springer, vol. 18(3), pages 235-45, November.
  6. Bulow, Jeremy I & Geanakoplos, John D & Klemperer, Paul D, 1985. "Multimarket Oligopoly: Strategic Substitutes and Complements," Journal of Political Economy, University of Chicago Press, vol. 93(3), pages 488-511, June.
  7. Mark Armstrong, 2001. "Access Pricing, Bypass, and Universal Service," American Economic Review, American Economic Association, vol. 91(2), pages 297-301, May.
  8. Rosston, Gregory L. & Wimmer, Bradley S., 2000. "The 'state' of universal service," Information Economics and Policy, Elsevier, vol. 12(3), pages 261-283, September.
  9. Rosston, G.R. & Wimmer, B.S., 2000. "The "State" of Universal Service," Papers 99-018, United Nations World Employment Programme-.
  10. Armstrong, Mark & Vickers, John, 1993. "Price Discrimination, Competition and Regulation," Journal of Industrial Economics, Wiley Blackwell, vol. 41(4), pages 335-59, December.
  11. Uri Ronnen, 1991. "Minimum Quality Standards, Fixed Costs, and Competition," RAND Journal of Economics, The RAND Corporation, vol. 22(4), pages 490-504, Winter.
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