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Can Two-Part Tariffs Promote Efficient Investment on Next Generation Networks?

Author

Listed:
  • Duarte Brito

    (Universidade Nova de Lisboa)

  • Pedro Pereira

    (Autoridade da Concorrência)

  • João Vareda

    (Autoridade da Concorrência)

Abstract

We analyze if two-part access tariffs solve the dynamic consistency problem of the regulation of Next Generation Networks. We model the industry as a duopoly, where a vertically integrated incumbent and a downstream entrant, that requires access to the incumbent's network, compete on Hotelling's line. The incumbent can invest in the deployment of a next generation network that improves the quality of the retail services. We have three main results. First, we show that only if the investment cost is low, the regulator can induce investment when he cannot commit to a policy. Second, we show that in this case, two-part tariffs involve payments from the entrant to the incumbent that may be politically unacceptably high. Third, we show that if the regulator can commit to a policy, a regulatory moratorium may emerge as socially optimal.

Suggested Citation

  • Duarte Brito & Pedro Pereira & João Vareda, 2008. "Can Two-Part Tariffs Promote Efficient Investment on Next Generation Networks?," Working Papers 34, Portuguese Competition Authority.
    • Handle: RePEc:pca:wpaper:34
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    File URL: http://www.concorrencia.pt/download/WP34_Two_Part_NGN.pdf
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    JEL classification:

    • L43 - Industrial Organization - - Antitrust Issues and Policies - - - Legal Monopolies and Regulation or Deregulation
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications
    • L98 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Government Policy

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