IDEAS home Printed from https://ideas.repec.org/p/unl/unlfep/wp526.html
   My bibliography  Save this paper

Unbundling and incumbent investment in quality upgrades and cost reduction

Author

Listed:
  • Joao Vareda

Abstract

We study the investment of a telecommunications incumbent in quality and in cost reduction when an entrant can use its network through unbundling of the local loop. We ?nd that unbundling may lower incentives for quality improvements, but raises incentives for cost reduction. Therefore, it is not true that all types of investment are crowded out with unbundling. If the regulator can commit to a socially optimal unbundling price before investment, the incumbent makes both types of investment. In the absence of commitment, the incumbent will not invest, so that unbundling regulation may lower welfare as compared to no regulation.

Suggested Citation

  • Joao Vareda, 2007. "Unbundling and incumbent investment in quality upgrades and cost reduction," Nova SBE Working Paper Series wp526, Universidade Nova de Lisboa, Nova School of Business and Economics.
    • Handle: RePEc:unl:unlfep:wp526
    as

    Download full text from publisher

    File URL: https://run.unl.pt/bitstream/10362/82845/1/WP526.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Chang, Hsihui & Koski, Heli & Majumdar, Sumit K., 0. "Regulation and investment behaviour in the telecommunications sector: policies and patterns in US and Europe," Telecommunications Policy, Elsevier, vol. 27(10-11), pages 677-699, November.
    2. Joao Vareda & Steffen Hoernig, 2007. "The race for telecoms infrastructure investment with bypass: can access regulation achieve the first best?," Nova SBE Working Paper Series wp524, Universidade Nova de Lisboa, Nova School of Business and Economics.
    3. Biglaiser, Gary & Ma, Ching-To Albert, 1999. "Investment Incentives of a Regulated Dominant Firm," Journal of Regulatory Economics, Springer, vol. 16(3), pages 215-235, November.
    4. Kotakorpi, Kaisa, 2006. "Access price regulation, investment and entry in telecommunications," International Journal of Industrial Organization, Elsevier, vol. 24(5), pages 1013-1020, September.
    5. Graeme Guthrie, 2006. "Regulating Infrastructure: The Impact on Risk and Investment," Journal of Economic Literature, American Economic Association, vol. 44(4), pages 925-972, December.
    6. Cabral, Luis M B & Riordan, Michael H, 1989. "Incentives for Cost Reduction under Price Cap Regulation," Journal of Regulatory Economics, Springer, vol. 1(2), pages 93-102, June.
    7. de Bijl, P.W.J. & Peitz, M., 2004. "Unbundling the Local Loop : One-Way Access and Imperfect Competition," Other publications TiSEM c4c1aaba-c45d-46d1-9ebb-c, Tilburg University, School of Economics and Management.
    8. Valletti, Tommaso M., 0. "The theory of access pricing and its linkage with investment incentives," Telecommunications Policy, Elsevier, vol. 27(10-11), pages 659-675, November.
    9. Bourreau, Marc & Dogan, Pinar, 2005. "Unbundling the local loop," European Economic Review, Elsevier, vol. 49(1), pages 173-199, January.
    10. Jean-Jacques Laffont & Jean Tirole, 2001. "Competition in Telecommunications," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262621509, December.
    11. Jerry A. Hausman & J. Gregory Sidak, 2005. "Did Mandatory Unbundling Achieve Its Purpose? Empirical Evidence from Five Countries," Journal of Competition Law and Economics, Oxford University Press, vol. 1(1), pages 173-245.
    12. Spence, Michael, 1976. "Product Differentiation and Welfare," American Economic Review, American Economic Association, vol. 66(2), pages 407-414, May.
    13. Foros, Oystein, 2004. "Strategic investments with spillovers, vertical integration and foreclosure in the broadband access market," International Journal of Industrial Organization, Elsevier, vol. 22(1), pages 1-24, January.
    14. Cambini, Carlo & Valletti, Tommaso M., 2004. "Access charges and quality choice in competing networks," Information Economics and Policy, Elsevier, vol. 16(3), pages 391-409, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Duarte Brito & Pedro Pereira & João Vareda, 2008. "Incentives to Invest and to Give Access to Non-Regulated Next Generation Networks," Working Papers 35, Portuguese Competition Authority.
    2. Daniel Montolio & Elisa Trujillo, 2012. "What drives investment in telecommunications? The role of regulation, firms’ internationalization and market knowledge," Working Papers 2012/1, Institut d'Economia de Barcelona (IEB).
    3. Daniel Montolio & Elisa Trujillo, 2012. "What drives investment in telecommunications? The role of regulation, firms’ internationalization and market knowledge," Working Papers 2012/1, Institut d'Economia de Barcelona (IEB).
    4. João Vareda, 2007. "Access Regulation under Asymmetric Information about Demand," Working Papers 30, Portuguese Competition Authority.
    5. Vareda João & Hoernig Steffen, 2010. "Racing for Investment under Mandatory Access," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 10(1), pages 1-31, July.
    6. Lars-Hendrik Röller, 2009. "Effects of regulation on investment behaviour in network industries: The European telecommunications industry," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 62(10), pages 12-15, May.
    7. Bourreau Marc & Dogan Pinar, 2012. "Level of Access and Competition in Broadband Markets," Review of Network Economics, De Gruyter, vol. 11(1), pages 1-33, March.
    8. Michiel Bijlsma & Viktoria Kocsis & Victoria Shestalova & Gijsbert Zwart, 2008. "Vertical foreclosure: a policy framework," CPB Document 157, CPB Netherlands Bureau for Economic Policy Analysis.
    9. Veith, Tobias, 2009. "Mobile network interconnection and investments," ZEW Discussion Papers 09-071, ZEW - Leibniz Centre for European Economic Research.
    10. Romain Lestage & David Flacher, 2011. "Access Regulation and Welfare," TEMEP Discussion Papers 201185, Seoul National University; Technology Management, Economics, and Policy Program (TEMEP), revised Dec 2011.
    11. Okamoto, Yoshikazu & Nakamura, Akihiro, 2013. "The influence of local loop unbundling on investment by incumbent telecommunications operators in the OECD member countries," 24th European Regional ITS Conference, Florence 2013 88499, International Telecommunications Society (ITS).
    12. Haucap, Justus & Klein, Gordon J., 2012. "How regulation affects network and service quality in related markets," Economics Letters, Elsevier, vol. 117(2), pages 521-524.
    13. Nitsche, Rainer & Wiethaus, Lars, 2011. "Access regulation and investment in next generation networks -- A ranking of regulatory regimes," International Journal of Industrial Organization, Elsevier, vol. 29(2), pages 263-272, March.
    14. Benjamin Pakula & Georg Götz, 2011. "Organisational Structures in Network Industries – An Application to the Railway Industry," MAGKS Papers on Economics 201109, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    15. Hoernig, Steffen & Jay, Stephan & Neumann, Karl-Heinz & Peitz, Martin & Plückebaum, Thomas & Vogelsang, Ingo, 2012. "The impact of different fibre access network technologies on cost, competition and welfare," Telecommunications Policy, Elsevier, vol. 36(2), pages 96-112.
    16. Pachis, Athanasios & Yannelis, Demetrius, 2013. "The relation between local loop unbundling and investment in fixed telephony," 24th European Regional ITS Conference, Florence 2013 88470, International Telecommunications Society (ITS).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Michał Grajek & Lars-Hendrik Röller, 2012. "Regulation and Investment in Network Industries: Evidence from European Telecoms," Journal of Law and Economics, University of Chicago Press, vol. 55(1), pages 189-216.
    2. Inderst, Roman & Peitz, Martin, 2011. "Netzzugang, Wettbewerb und Investitionen," ZEW Discussion Papers 11-025, ZEW - Leibniz Centre for European Economic Research.
    3. Inderst, Roman & Peitz, Martin, 2012. "Network investment, access and competition," Telecommunications Policy, Elsevier, vol. 36(5), pages 407-418.
    4. Brito, Duarte & Pereira, Pedro & Vareda, João, 2010. "Can two-part tariffs promote efficient investment on next generation networks?," International Journal of Industrial Organization, Elsevier, vol. 28(3), pages 323-333, May.
    5. Inderst, Roman & Kühling, Jürgen & Neumann, Karl-Heinz & Peitz, Martin, 2010. "Investitionen, Wettbewerb und Netzzugang bei NGA: Ergebnisse einer Studie im Auftrag des Bundesministeriums für Wirtschaft und Technologie," WIK Discussion Papers 344, WIK Wissenschaftliches Institut für Infrastruktur und Kommunikationsdienste GmbH.
    6. Bourreau, Marc & Cambini, Carlo & Doğan, Pınar, 2012. "Access pricing, competition, and incentives to migrate from “old” to “new” technology," International Journal of Industrial Organization, Elsevier, vol. 30(6), pages 713-723.
    7. Maya Bacache & Marc Bourreau & Germain Gaudin, 2014. "Dynamic Entry and Investment in New Infrastructures: Empirical Evidence from the Fixed Broadband Industry," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 44(2), pages 179-209, March.
    8. João Vareda, 2011. "Quality upgrades and bypass under mandatory access," Journal of Regulatory Economics, Springer, vol. 40(2), pages 177-197, October.
    9. Keizo Mizuno & Ichiro Yoshino, 2015. "Overusing a bypass under cost-based access regulation: underinvestment with spillovers," Journal of Regulatory Economics, Springer, vol. 47(1), pages 29-57, February.
    10. Avenali, Alessandro & Matteucci, Giorgio & Reverberi, Pierfrancesco, 2010. "Dynamic access pricing and investment in alternative infrastructures," International Journal of Industrial Organization, Elsevier, vol. 28(2), pages 167-175, March.
    11. Dogan, Pinar & Bourreau, Marc & Manant, Matthieu, 2010. "A Critical Review of the “Ladder of Investment†Approach," Scholarly Articles 4777447, Harvard Kennedy School of Government.
    12. Hoernig, Steffen & Bastos Vareda, João Miguel, 2007. "The Race for Telecoms Infrastructure Investment with Bypass: Can Access Regulation Achieve the First-best?," CEPR Discussion Papers 6203, C.E.P.R. Discussion Papers.
    13. Nitsche, Rainer & Wiethaus, Lars, 2011. "Access regulation and investment in next generation networks -- A ranking of regulatory regimes," International Journal of Industrial Organization, Elsevier, vol. 29(2), pages 263-272, March.
    14. Pachis, Athanasios & Yannelis, Demetrius, 2013. "The relation between local loop unbundling and investment in fixed telephony," 24th European Regional ITS Conference, Florence 2013 88470, International Telecommunications Society (ITS).
    15. Mizuno, Keizo & Yoshino, Ichiro, 2012. "Distorted access regulation with strategic investments: Regulatory non-commitment and spillovers revisited," Information Economics and Policy, Elsevier, vol. 24(2), pages 120-131.
    16. Flacher, David & Jennequin, Hugues, 2014. "Access regulation and geographic deployment of a new generation infrastructure," Telecommunications Policy, Elsevier, vol. 38(8), pages 741-759.
    17. Marc Bourreau & Joeffrey Drouard, 2014. "Progressive entry and the incentives to invest in alternative infrastructures," Journal of Regulatory Economics, Springer, vol. 45(3), pages 329-351, June.
    18. Ingo Vogelsang, 2012. "Incentive Regulation, Investments and Technological Change," Chapters, in: Gerald R. Faulhaber & Gary Madden & Jeffrey Petchey (ed.), Regulation and the Performance of Communication and Information Networks, chapter 4, Edward Elgar Publishing.
    19. Vareda João & Hoernig Steffen, 2010. "Racing for Investment under Mandatory Access," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 10(1), pages 1-31, July.
    20. Briglauer, Wolfgang & Gugler, Klaus & Haxhimusa, Adhurim, 2016. "Facility- and service-based competition and investment in fixed broadband networks: Lessons from a decade of access regulations in the European Union member states," Telecommunications Policy, Elsevier, vol. 40(8), pages 729-742.

    More about this item

    Keywords

    Telecommunications regulation; unbundling; investments; quality upgrades; cost reduction; commitment;
    All these keywords.

    JEL classification:

    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • 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

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:unl:unlfep:wp526. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Susana Lopes (email available below). General contact details of provider: https://edirc.repec.org/data/feunlpt.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.