Strategic Bypass Deterrence
In liberalized network industries, entrants can either compete for service using the existing infrastructure (access) or deploy their own infrastructure capacity (bypass). In this paper, we demonstrate that, under the threat of bypass, the access price set by an unregulated and vertically integrated incumbent is compatible with productive effi ciency. This means that the entrant bypasses the existing infrastructure only if it can produces the network input more effi ciently. We show that the incumbent lowers the access price compared to the ex-post effi cient level to strategically deter ineffi cient bypass by the entrant. Accordingly, from a productive effi ciency point of view, there is no need to regulate access prices when the entrant has the option to bypass. Despite that, we show that restricting the possibilities of access might be profi table for consumers and welfare because competition is fi ercer under bypass.
|Date of creation:||07 Nov 2012|
|Note:||View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-00749318|
|Contact details of provider:|| Web page: https://hal.archives-ouvertes.fr/|
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.:
- Bourreau, Marc & Dogan, Pinar, 2005.
"Unbundling the local loop,"
European Economic Review,
Elsevier, vol. 49(1), pages 173-199, January.
- Bloch Francis & Gautier Axel, 2008.
"Access Pricing and Entry in the Postal Sector,"
Review of Network Economics,
De Gruyter, vol. 7(2), pages 1-24, June.
- BLOCH, Francis & GAUTIER, Axel, "undated". "Access pricing and entry in the postal sector," CORE Discussion Papers RP 2059, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Francis Bloch & Axel Gautier, 2006. "Access Pricing and Entry in the Postal Sector," CREPP Working Papers 0606, Centre de Recherche en Economie Publique et de la Population (CREPP) (Research Center on Public and Population Economics) HEC-Management School, University of Liège.
- BLOCH, Francis & GAUTIER, Axel, 2006. "Access pricing and entry in the postal sector," CORE Discussion Papers 2006065, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Francis Bloch & Axel Gautier, 2006. "Access Pricing and Entry in the Postal Sector," Working Papers halshs-00411358, HAL.
- Francis Bloch & A. Gautier, 2008. "Acces pricing and entry in the postal sector," Post-Print hal-00361691, HAL.
- Peitz, Martin, 2005. "Asymmetric access price regulation in telecommunications markets," European Economic Review, Elsevier, vol. 49(2), pages 341-358, February.
- David E. M Sappington, 2005. "On the Irrelevance of Input Prices for Make-or-Buy Decisions," American Economic Review, American Economic Association, vol. 95(5), pages 1631-1638, December.
- Jean-Jacques Laffont & Jean Tirole, 1994.
"Access Pricing and Competition,"
94-31, Massachusetts Institute of Technology (MIT), Department of Economics.
- Philip Gayle & Dennis Weisman, 2007. "Are input prices irrelevant for make-or-buy decisions?," Journal of Regulatory Economics, Springer, vol. 32(2), pages 195-207, October.
- David Mandy, 2009. "Pricing inputs to induce efficient Make-or-Buy decisions," Journal of Regulatory Economics, Springer, vol. 36(1), pages 29-43, August.
- Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, September.
When requesting a correction, please mention this item's handle: RePEc:hal:wpaper:hal-00749318. 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: (CCSD)
If references are entirely missing, you can add them using this form.