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Network Competition and Entry Deterrence

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  • Calzada, Joan
  • Valletti, Tommaso

Abstract

We develop a model of logit demand that extends to a multi-firm industry the traditional duopoly framework of network competition with access charges. Firstly, we show that, when incumbents do not face the threat of entry and compete in prices, they inefficiently establish the reciprocal access charge below cost. This inefficiency disappears if incumbents compete in utilities instead of prices. Secondly, we study how incumbents change their choices under the threat of entry when they determine an industry-wide (non-discriminatory) access charge. We show how incumbents may accommodate all possible entrants, only a group of them, or may completely deter entry. When entry deterrence is the preferred option, incumbents distort upwards the access charges.

Suggested Citation

  • Calzada, Joan & Valletti, Tommaso, 2005. "Network Competition and Entry Deterrence," CEPR Discussion Papers 5381, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:5381
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    References listed on IDEAS

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    1. Doganoglu, Toker & Tauman, Yair, 2002. "Network Competition and Access Charge Rules," Manchester School, University of Manchester, vol. 70(1), pages 16-35, January.
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    More about this item

    Keywords

    entry deterrence; interconnection; telecommunications;

    JEL classification:

    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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