Investments and Network Competition
This Paper analyses the incentives that operators have to invest in facilities with different levels of quality. A network of better quality is more expensive but may give an important edge to an operator when competing against a rival. We extend the framework of Armstrong-Laffont-Rey-Tirole by introducing an investment stage, prior to price competition. We show that the incentives to invest are influenced by the way termination charges are set. In particular, when the quality of a network has an impact on all calls initiated by own customers (destined both on-net and off-net), we obtain a result of ‘tacit collusion’ even in a symmetric model with two-part pricing. Firms tend to under invest in quality, and this would be exacerbated if they can negotiate reciprocal termination charges above cost. We also show that when the quality of off-net calls depends on the interaction between the quality of the two networks, there is another serious problem, namely that no network has an incentive to jump ahead of the rival.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
|Date of creation:||Mar 2003|
|Contact details of provider:|| Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ.|
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
|Order Information:|| Email: |
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Economides, Nicholas, 1999.
"Quality choice and vertical integration,"
International Journal of Industrial Organization,
Elsevier, vol. 17(6), pages 903-914, August.
- de Bijl,Paul & Peitz,Martin, 2003.
"Regulation and Entry into Telecommunications Markets,"
Cambridge University Press, number 9780521808378, December.
- de Bijl,Paul & Peitz,Martin, 2008. "Regulation and Entry into Telecommunications Markets," Cambridge Books, Cambridge University Press, number 9780521066631, December.
- Michael Carter & Julian Wright, 2003. "Asymmetric Network Interconnection," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 22(1), pages 27-46, February.
- Gans, J.S. & King, S.P., 2000.
"Using 'Bill and Keep' Interconnect Arrangements to Soften Network Competiti on,"
Department of Economics - Working Papers Series
739, The University of Melbourne.
- Gans, Joshua S. & King, Stephen P., 2001. "Using 'bill and keep' interconnect arrangements to soften network competition," Economics Letters, Elsevier, vol. 71(3), pages 413-420, June.
- Armstrong, Mark, 1998. "Network Interconnection in Telecommunications," Economic Journal, Royal Economic Society, vol. 108(448), pages 545-64, May.
- Peitz, Martin, 2005. "Asymmetric access price regulation in telecommunications markets," European Economic Review, Elsevier, vol. 49(2), pages 341-358, February.
- Armstrong, M., 1996. "Network interconnection," Discussion Paper Series In Economics And Econometrics 9625, Economics Division, School of Social Sciences, University of Southampton.
- Armstrong, Mark, 2001. "The theory of access pricing and interconnection," MPRA Paper 15608, University Library of Munich, Germany.
- Cambini, Carlo & Valletti, Tommaso M., 2003. "Network competition with price discrimination: 'bill-and-keep' is not so bad after all," Economics Letters, Elsevier, vol. 81(2), pages 205-213, November.
When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:3829. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.