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Competition between Vertically Integrated Networks: a Generalized Model


  • Carlo Cambini


Using the Laffont, Rey and Tirole (1998) framework, a model of competition between vertically integrated telecommunications networks in a deregulated environment is developed. Two local operators compete in linear and non linear tariffs (i.e. two-part tariffs) in the subscribers market. In addition, they are integrated downstream in a potentially competitive sector (i.e. long distance sector) where they face competition of other firms which require (one way) access to local networks as an "essential facility". The purpose of the paper is to introduce a "downstream" competition in the usual framework of network competition and to focus on how the one way access charges are set in an oligopolistic market. In a mature phase of the industry, the presence of competition in both local and long distance sectors leads to lower local and long distance tariffs. The strategic role of the two-way and one-way access charges is pointed out, with particular reference to the effect that the reciprocal (two-way) access charge has on competition in the complementary sector. Finally, in case of competition in two-part tariffs, the paper investigates: 1) the asymmetric case in which only one network is integrated; 2) the entry process when the two local networks have different coverage. The results show how the level of the two-way and one-way access charges affects the "level playing field" between networks.

Suggested Citation

  • Carlo Cambini, 2000. "Competition between Vertically Integrated Networks: a Generalized Model," ICER Working Papers 01-2000, ICER - International Centre for Economic Research.
  • Handle: RePEc:icr:wpicer:01-2000

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    References listed on IDEAS

    1. Nicholas Economides & Giuseppe Lopomo & Glenn Woroch, 1997. "Strategic Commitments and the Principle of Reciprocity in Interconnection Pricing," Industrial Organization 9701001, EconWPA.
    2. Armstrong, Mark & Doyle, Chris & Vickers, John, 1996. "The Access Pricing Problem: A Synthesis," Journal of Industrial Economics, Wiley Blackwell, vol. 44(2), pages 131-150, June.
    3. Nicholas Economides & Lawrence J. White, 1995. "Access and Interconnection Pricing: How Efficient is the Efficient Component Pricing Rule?," Working Papers 95-04, New York University, Leonard N. Stern School of Business, Department of Economics.
    4. Armstrong, Mark, 1998. "Network Interconnection in Telecommunications," Economic Journal, Royal Economic Society, vol. 108(448), pages 545-564, May.
    5. J. Gregory Sidak & William Baumol, 1994. "Toward Competition in Local Telephony," Books, American Enterprise Institute, number 52984, September.
    6. Valletti, Tommaso M., 1999. "A model of competition in mobile communications," Information Economics and Policy, Elsevier, vol. 11(1), pages 61-72, March.
    7. Armstrong, Mark, 1997. "Competition in Telecommunications," Oxford Review of Economic Policy, Oxford University Press, vol. 13(1), pages 64-82, Spring.
    8. Federico Mini, 1999. "The Role of Incentives for Opening Monopoly Markets: Comparing GTE and RBOC Cooperation with Local Entrants," Industrial Organization 9907004, EconWPA.
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    More about this item


    Telecommunications; Interconnection; Integration; Competition Policy;

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications


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