Non-cost-raising discrimination: A rationale for functional separation in broadband open access
I present a vertical differentiation model to assess the quality-wise strategy of an incumbent telecommunications operator under open access regimes. I show that it is always profitable for an incumbent subject to wholesale regulation to degrade wholesale quality in a non-recoverable fashion. The findings are robust to the number of competitors and the price cap level, unlike those predicted by the cost-raising discrimination paradigm. I also show that functional separation, a structural remedy aimed at separating the incumbent's wholesale and retail operations, better aligns supply-side incentives with those of consumers. The analysis suggests that structural remedies exhibit good properties to implement open access regimes.
|Date of creation:||11 Nov 2011|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.iese.edu/
More information through EDIRC
References listed on IDEAS
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.:
- Bustos Alvaro E & Galetovic Alexander, 2009.
"Vertical Integration and Sabotage with a Regulated Bottleneck Monopoly,"
The B.E. Journal of Economic Analysis & Policy,
De Gruyter, vol. 9(1), pages 1-52, September.
- Alvaro Bustos & Alexander Galetovic, 2003. "Vertical Integration and Sabotage in Regulated Industries," Documentos de Trabajo 164, Centro de Economía Aplicada, Universidad de Chile.
- Esther Gal-Or, 1983. "Quality and Quantity Competition," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 590-600, Autumn.
- Armstrong, Mark & Sappington, David E.M., 2007. "Recent Developments in the Theory of Regulation," Handbook of Industrial Organization, Elsevier.
- David Mandy & David Sappington, 2007.
"Incentives for sabotage in vertically related industries,"
Journal of Regulatory Economics,
Springer, vol. 31(3), pages 235-260, June.
- David Mandy & David E. M. Sappington, 2004. "Incentives for Sabotage in Vertically Related Industries," Working Papers 0404, Department of Economics, University of Missouri, revised 16 Dec 2004.
- Sibley, David S. & Weisman, Dennis L., 1998. "Raising rivals' costs: The entry of an upstream monopolist into downstream markets," Information Economics and Policy, Elsevier, vol. 10(4), pages 451-470, December.
- Wauthy, X., 1994.
"Quality Choice in Models of Vertical Differentiation,"
Discussion Papers (IRES - Institut de Recherches Economiques et Sociales)
1994033, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
- Wauthy, Xavier, 1996. "Quality Choice in Models of Vertical Differentiation," Journal of Industrial Economics, Wiley Blackwell, vol. 44(3), pages 345-53, September.
- Bourreau, Marc & Dogan, Pinar, 2005.
"Unbundling the local loop,"
European Economic Review,
Elsevier, vol. 49(1), pages 173-199, January.
- 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.
- Beard, T Randolph & Kaserman, David L & Mayo, John W, 2001. "Regulation, Vertical Integration and Sabotage," Journal of Industrial Economics, Wiley Blackwell, vol. 49(3), pages 319-33, September.
- Jaskold Gabszewicz, J. & Thisse, J. -F., 1979.
"Price competition, quality and income disparities,"
Journal of Economic Theory,
Elsevier, vol. 20(3), pages 340-359, June.
- Foros, Oystein, 2004. "Strategic investments with spillovers, vertical integration and foreclosure in the broadband access market," International Journal of Industrial Organization, Elsevier, vol. 22(1), pages 1-24, January.
- Rubinfeld, Daniel L & Singer, Hal J, 2001. "Vertical Foreclosure in Broadband Access?," Journal of Industrial Economics, Wiley Blackwell, vol. 49(3), pages 299-318, September.
- Acharyya, Rajat, 1998. "Monopoly and product quality: Separating or pooling menu?," Economics Letters, Elsevier, vol. 61(2), pages 187-194, November.
- David Sappington, 2005. "Regulating Service Quality: A Survey," Journal of Regulatory Economics, Springer, vol. 27(2), pages 123-154, November.
When requesting a correction, please mention this item's handle: RePEc:ebg:iesewp:d-0942. 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: (Noelia Romero)
If references are entirely missing, you can add them using this form.