"Build or Buy" Strategies in the Local Loop
We provide a dynamic model to study how the presence of the option to "buy" the incumbent local exchange carrier's (ILEC) facilities via local loop unbundling affects the competitive local exchange carriers' (CLECs) incentives to "build" alternative infrastructures. We show that an unregulated incumbent sets a rental path for its local loop which delays technology adoption compared to the case in which there is no unbundling. We also characterize the equilibrium rental path set by the unregulated incumbent; it is prohibitively high at the initial phases when there is no effective threat of entry with alternative technologies, and it is decreasing over time in later phases. The decrease in the rental price follows the rise of the entrant's opportunity cost of leasing lines. We also argue that neither allowing higher prices for unbundled elements over time nor setting a sunset clause would suffice to induce facility-based competition. By studying the unregulated ILECs decision regarding unbundling, we challenge the implicit assumption behind the sunset clauses, which is that the ILEC would either deny unbundling or charge too high a price for its network elements in the absence of regulation. We claim that the ILECs that initially resist unbundling requirements would tend to charge attractive access prices (relative to the entrants' alternatives) for their infrastructure, which become less essential over time.
|Date of creation:||Oct 2005|
|Date of revision:|
|Contact details of provider:|| Postal: 79 JFK Street, Cambridge, MA 02138|
Web page: http://www.ksg.harvard.edu/research/working_papers/index.htm
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.:
- Crandall Robert W. & Ingraham Allan T & Singer Hal J, 2004. "Do Unbundling Policies Discourage CLEC Facilities-Based Investment," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 4(1), pages 1-25, June.
- Robert S. Pindyck, 2005. "Pricing Capital Under Mandatory Unbundling and Facilities Sharing," NBER Working Papers 11225, National Bureau of Economic Research, Inc.
- Michael L. Katz & Carl Shapiro, 1985. "On the Licensing of Innovations," RAND Journal of Economics, The RAND Corporation, vol. 16(4), pages 504-520, Winter.
- Michael H. Riordan, 1992.
"Regulation and Preemptive Technology Adoption,"
RAND Journal of Economics,
The RAND Corporation, vol. 23(3), pages 334-349, Autumn.
- M. Bourreau & P. Dogan, .
"Unbundling the Local Loop,"
33648, Harvard University OpenScholar.
- Robert S. Pindyck, 2004.
"Mandatory Unbundling and Irreversible Investment in Telecom Networks,"
NBER Working Papers
10287, National Bureau of Economic Research, Inc.
- Pindyck Robert S., 2007. "Mandatory Unbundling and Irreversible Investment in Telecom Networks," Review of Network Economics, De Gruyter, vol. 6(3), pages 1-25, September.
- Bourreau, Marc & Dogan, Pinar, 2004. "Service-based vs. facility-based competition in local access networks," Information Economics and Policy, Elsevier, vol. 16(2), pages 287-306, June.
- Economides, Nicholas, 1998. "The incentive for non-price discrimination by an input monopolist," International Journal of Industrial Organization, Elsevier, vol. 16(3), pages 271-284, May.
- Gallini, Nancy T, 1984. "Deterrence by Market Sharing: A Strategic Incentive for Licensing," American Economic Review, American Economic Association, vol. 74(5), pages 931-41, December.
- Reinganum, Jennifer R., 1982.
"Uncertain Innovation and the Persistence of Monopoly,"
431, California Institute of Technology, Division of the Humanities and Social Sciences.
- Reinganum, Jennifer F, 1983. "Uncertain Innovation and the Persistence of Monopoly," American Economic Review, American Economic Association, vol. 73(4), pages 741-48, September.
- Gilbert, Richard J & Newbery, David M G, 1982. "Preemptive Patenting and the Persistence of Monopoly," American Economic Review, American Economic Association, vol. 72(3), pages 514-26, June.
- 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.
When requesting a correction, please mention this item's handle: RePEc:ecl:harjfk:rwp05-060. 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.