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Technology Investment and Alternative Regulatory Regimes with Demand Uncertainty

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  • Carlo Cambini and Virginia Silvestri

Abstract

A vertically integrated incumbent and an OLO (Other Licensed Operator) dynamically compete in the market for broadband access. The incumbent has the option to invest in building a Next Generation Network that covers all urban areas with similar demand structures. The investment return in terms of demand increase is uncertain. We compare the impact of different access price regulation regimes - full regulation, partial regulation (only the copper network is regulated), risk sharing - on investment incentives and social welfare. We find that, compared to Foros (2004), the OLO gets better access condition in case of partial regulation and exclusion does not necessarily happen in equilibrium even if the incumbent has more ability than the OLO. Moreover, risk sharing emerges as the most preferable regime both from a consumer and a social welfare perspective for a large range of parameters.

Suggested Citation

  • Carlo Cambini and Virginia Silvestri, 2012. "Technology Investment and Alternative Regulatory Regimes with Demand Uncertainty," RSCAS Working Papers 2012/15, European University Institute.
    • Handle: RePEc:rsc:rsceui:2012/15
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    References listed on IDEAS

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    More about this item

    Keywords

    Investment; Regulation; Access pricing; New Technology; Risk Sharing; L51; L96;
    All these keywords.

    JEL classification:

    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications

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