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Service provision on a network with endogenous consumption capacity

Author

Listed:
  • Nikolaos Georgantzis

    () (Universitat Jaume I)

  • Carlos Gutiérrez-Hita

    (Universidad de Alicante)

Abstract

We present a model in which the consumers' capacity to access a service provided on a network depends negatively on the price charged by the network owner per capacity unit. Several scenarios concerning the structure of the downstream service provision market are studied. First, a monopolist operates in both the network and the service provision stage. Second, we assume duopolistic competition between the network owner and the entrant. Third, we allow for endogenous differentiation of the services provided by the two competitors. Generally speaking, the duopolistic structure does not necessarily enhance consumer surplus. Furthermore, competition in the service provision market may reduce social welfare, either due to excessive differentiation or due to a low network density.

Suggested Citation

  • Nikolaos Georgantzis & Carlos Gutiérrez-Hita, 2008. "Service provision on a network with endogenous consumption capacity," Working Papers. Serie AD 2008-01, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  • Handle: RePEc:ivi:wpasad:2008-01
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    File URL: http://www.ivie.es/downloads/docs/wpasad/wpasad-2008-01.pdf
    File Function: Fisrt version / Primera version, 2008
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    References listed on IDEAS

    as
    1. de Bijl, Paul W.J. & Peitz, Martin, 2005. "Local Loop Unbundling in Europe: Experience, Prospects and Policy Challenges," MPRA Paper 2441, University Library of Munich, Germany.
    2. Shane Greenstein & Michael Mazzeo, 2006. "THE ROLE OF DIFFERENTIATION STRATEGY IN LOCAL TELECOMMUNICATION ENTRY AND MARKET EVOLUTION: 1999-2002 -super-," Journal of Industrial Economics, Wiley Blackwell, vol. 54(3), pages 323-350, September.
    3. Dessein, Wouter, 2003. " Network Competition in Nonlinear Pricing," RAND Journal of Economics, The RAND Corporation, vol. 34(4), pages 593-611, Winter.
    4. Carlos Gutiérrez-Hita & Martin Peitz, 2001. "Retailer Locations, Local Supply And Price Policies," Working Papers. Serie AD 2001-26, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    5. d'Aspremont, C & Gabszewicz, Jean Jaskold & Thisse, J-F, 1979. "On Hotelling's "Stability in Competition"," Econometrica, Econometric Society, vol. 47(5), pages 1145-1150, September.
    6. Martin Peitz, 2005. "Asymmetric Regulation of Access and Price Discrimination in Telecommunications," Journal of Regulatory Economics, Springer, vol. 28(3), pages 327-343, November.
    7. Armstrong, Mark, 1998. "Network Interconnection in Telecommunications," Economic Journal, Royal Economic Society, vol. 108(448), pages 545-564, May.
    8. Armstrong, M., 1996. "Network interconnection," Discussion Paper Series In Economics And Econometrics 9625, Economics Division, School of Social Sciences, University of Southampton.
    9. Ingo Vogelsang, 2003. "Price Regulation of Access to Telecommunications Networks," Journal of Economic Literature, American Economic Association, vol. 41(3), pages 830-862, September.
    10. Peitz, Martin, 2005. "Asymmetric access price regulation in telecommunications markets," European Economic Review, Elsevier, vol. 49(2), pages 341-358, February.
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    Cited by:

    1. Vadym Lepetyuk & Christian A. Stoltenberg, 2013. "Policy Announcements and Welfare," Economic Journal, Royal Economic Society, vol. 123, pages 962-997, September.
    2. Alfonso Rosa García & Hubert Janos Kiss & Ismael Rodríguez Lara, 2009. "Do social networks prevent bank runs?," Working Papers. Serie AD 2009-25, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    3. Francisco Martinez-Sanchez, 2011. "Collusion, competition and piracy," Applied Economics Letters, Taylor & Francis Journals, vol. 18(11), pages 1043-1047.
    4. Marisa Hidalgo-Hidalgo & Iñigo Iturbe-Ormaetxe, 2012. "Should we transfer resources from college to basic education?," Journal of Economics, Springer, vol. 105(1), pages 1-27, January.

    More about this item

    Keywords

    telecommunications markets; regulation; endogenous consumption.;

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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