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Should Uniform Pricing Contraints be Imposed on Entrants?

  • Hoernig, Steffen

This paper analyses the effects of universal service obligations, such as uniform pricing, coverage constraints and price caps, on markets newly opened to competition, e.g. broadband services. We show that the requirement of uniform pricing has strong repercussions on coverage decisions. Imposed on the incumbent only, it may distort his coverage decision downward to avoid duopoly entry. If also imposed on entrants it increases the likelihood that entry leads to independent monopolies rather than competition. A large enough coverage constraint on the incumbent re-establishes incentives for duopoly entry, but may lead to higher prices.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5052.

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Date of creation: May 2005
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Handle: RePEc:cpr:ceprdp:5052
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  1. Armstrong, Mark & Vickers, John, 1993. "Price Discrimination, Competition and Regulation," Journal of Industrial Economics, Wiley Blackwell, vol. 41(4), pages 335-59, December.
  2. Barros, Pedro Luis Pita & Hoernig, Steffen & Valletti, Tommaso, 2001. "Universal Service and Entry: the Role of Uniform Pricing and Coverage Constraints," CEPR Discussion Papers 2789, C.E.P.R. Discussion Papers.
  3. Hoerning, Steffen, 2002. "Should Uniform Pricing Constraints be Imposed on Entrants?," FEUNL Working Paper Series wp417, Universidade Nova de Lisboa, Faculdade de Economia.
  4. Fudenberg, Drew & Tirole, Jean, 1984. "The Fat-Cat Effect, the Puppy-Dog Ploy, and the Lean and Hungry Look," American Economic Review, American Economic Association, vol. 74(2), pages 361-66, May.
  5. Anton, James J. & Vander Weide, James H. & Vettas, Nikolaos, 2002. "Entry auctions and strategic behavior under cross-market price constraints," International Journal of Industrial Organization, Elsevier, vol. 20(5), pages 611-629, May.
  6. Chone, Philippe & Flochel, Laurent & Perrot, Anne, 2000. "Universal service obligations and competition," Information Economics and Policy, Elsevier, vol. 12(3), pages 249-259, September.
  7. Hoernig, Steffen, 2005. "Should Uniform Pricing Contraints be Imposed on Entrants?," CEPR Discussion Papers 5052, C.E.P.R. Discussion Papers.
  8. Foros, Oystein & Kind, Hans Jarle, 2003. "The Broadband Access Market: Competition, Uniform Pricing and Geographical Coverage," Journal of Regulatory Economics, Springer, vol. 23(3), pages 215-35, May.
  9. Faulhaber, Gerald R & Hogendorn, Christiaan, 2000. "The Market Structure of Broadband Telecommunications," Journal of Industrial Economics, Wiley Blackwell, vol. 48(3), pages 305-29, September.
  10. Jean-Jacques Laffont & Jean Tirole, 2001. "Competition in Telecommunications," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262621509, June.
  11. S. Baranzoni & P. Bianchi & L. Lambertini, 2000. "Market Structure," Working Papers 368, Dipartimento Scienze Economiche, Universita' di Bologna.
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