Service Bundling and the Role of Access Charge in the Broadband Internet Service Market
Using the classical Hotelling model, this paper analyzes the incentive for a CATV service provider to bundle broadband internet services when entering the broadband internet services market. In addition, the effect of such service bundling by an entrant on the market incumbent with ownership over existing bottleneck facilities is analyzed. Furthermore, an access charge that maximizes social welfare is explored and determined. Two cases are considered: in the first case, the market is fully covered; and in the second case, the market is not fully covered. With full market coverage, an entrant has an incentive for service bundling if there is sufficient service differentiation. The entrant's bundling strategy reduces the incumbent's profit. In this case, the total social welfare is independent of the level of the access charge and only has an effect of redistributing the net surplus between consumers and the incumbent. With partial market coverage, the entrant has an incentive for service bundling at a low access charge. The incumbent's profit increases if the access charge is higher than the cost of access provisioning. In this case, the total social welfare is dependent on the level of access charge and the welfare maximizing access charge is less than the unit cost of providing access.
|Date of creation:||Sep 2006|
|Publication status:||Published in International Journal of Digital Economics 63 (2006): pp. 73-91|
|Contact details of provider:|| Postal: Ludwigstraße 33, D-80539 Munich, Germany|
Web page: https://mpra.ub.uni-muenchen.de
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Denicolo, Vincenzo, 2000. "Compatibility and Bundling with Generalist and Specialist Firms," Journal of Industrial Economics, Wiley Blackwell, vol. 48(2), pages 177-188, June.
- 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.
- Armstrong, M. & Doyle, C. & Vickers, J., 1995. "The access pricing problem: a synthesis," Discussion Paper Series In Economics And Econometrics 9532, Economics Division, School of Social Sciences, University of Southampton.
- Schmalensee, Richard, 1982. "Commodity Bundling by Single-Product Monopolies," Journal of Law and Economics, University of Chicago Press, vol. 25(1), pages 67-71, April.
- Carbajo, Jose & de Meza, David & Seidmann, Daniel J, 1990. "A Strategic Motivation for Commodity Bundling," Journal of Industrial Economics, Wiley Blackwell, vol. 38(3), pages 283-298, March.
- Foros, Oystein & Hansen, Bjorn, 2001. "Competition and compatibility among Internet Service Providers," Information Economics and Policy, Elsevier, vol. 13(4), pages 411-425, December.
- Armstrong, Mark, 1998. "Network Interconnection in Telecommunications," Economic Journal, Royal Economic Society, vol. 108(448), pages 545-564, May.
- Jean-Jacques Laffont & Jean Tirole, 2001. "Competition in Telecommunications," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262621509, September.
- Michael Carter & Julian Wright, 1999. "Interconnection in Network Industries," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 14(1), pages 1-25, February.
- Jay Pil Choi, 2004. "Tying and innovation: A dynamic analysis of tying arrangements," Economic Journal, Royal Economic Society, vol. 114(492), pages 83-101, 01. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:3553. 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: (Joachim Winter)
If references are entirely missing, you can add them using this form.