Network Investment and the Threat of Regulation – Preventing Monopoly Exploitation or Infrastructure Construction?
In summer 2005, the German telecommunication incumbent Deutsche Telekom announced its plans to build a new broadband fibre optics network. Deutsche Telekom decided as precondition for this new network not to be regulated with respect to pricing and third party access. To develop a regulator's strategy that allows investments and prevents monopolistic prices at the same time, we model an incumbent's decision problem under a threat of regulation in a game-theoretical context. The decision whether to invest or not depends on the probability of regulation and its assumed impact on investment returns. Depending on the incumbent's expectation on these parameters, he will decide if the investment is favourable, and which price to best set. This price is below a non-regulated profit maximising price, since the incumbent tries to circumvent regulation. Thus, we show that the mere threat of a regulator's intervention might prevent supernormal profits without actual price regulation. The regulator, on the other hand, can influence both investment decision and the incumbent's price via his signals on regulation probability and price. These signals an be considered optimal, if they simultaneously allow investment and minimize the incumbent's price.
|Date of creation:||May 2006|
|Contact details of provider:|| Postal: Kleine Märkerstrasse 8, 06108 Halle (Saale)|
Phone: (0345) 7753-60
Fax: (0345) 7753-820
Web page: http://www.iwh-halle.de
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:iwh:dispap:7-06. 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: (Tobias Henning)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.