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