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Gradual Network Expansion and Universal Service Obligations

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  • Axel Gautier
  • Keizo Mizuno

Abstract

Universal service obligations are usually not competitively neutral as they modify the way firms compete in the market. In this paper, we consider a continuum of local markets in a dynamic setting with a stochastically growing demand. The incumbent must serve all markets (ubiquity) possibly at a uniform price and an entrant decides on its market coverage before firms compete in prices. Connecting a market involves a sunk cost. We show that the imposition of a uniform price constraint modifies the timing of entry: for low connection cost markets, entry occurs earlier while for high connection cost markets, entry occurs later.

Suggested Citation

  • Axel Gautier & Keizo Mizuno, 2011. "Gradual Network Expansion and Universal Service Obligations," CREPP Working Papers 1105, Centre de Recherche en Economie Publique et de la Population (CREPP) (Research Center on Public and Population Economics) HEC-Management School, University of Liège.
    • Handle: RePEc:rpp:wpaper:1105
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    File URL: http://www2.ulg.ac.be/crepp/papers/crepp-wp201105.pdf
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    References listed on IDEAS

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    1. De Villemeur Etienne Billette & Cremer Helmuth & Boldron Francois & Roy Bernard, 2008. "Worksharing: A Calibrated Model," Review of Network Economics, De Gruyter, vol. 7(2), pages 1-22, June.
    2. Gonzales d’Alcantara & Axel Gautier, 2008. "National Postal Strategies after a Full Postal Market Opening," Chapters, in: Michael A. Crew & Paul R. Kleindorfer (ed.), Competition and Regulation in the Postal and Delivery Sector, chapter 12, Edward Elgar Publishing.
    3. repec:bpj:rneart:v:7:y:2008:i:2:p:272-293 is not listed on IDEAS
    4. repec:cor:louvrp:-2006 is not listed on IDEAS
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    Cited by:

    1. Poudou, Jean-Christophe & Roland, Michel, 2014. "Efficiency of uniform pricing in universal service obligations," International Journal of Industrial Organization, Elsevier, vol. 37(C), pages 141-152.
    2. Poudou, Jean-Christophe & Roland, Michel, 2017. "Equity justifications for universal service obligations," International Journal of Industrial Organization, Elsevier, vol. 52(C), pages 63-95.

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