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Incentive to invest in improving the quality in telecommunication industry

  • Jeanjean, François

This paper investigates the incentives to invest in improving the quality (as distinguished to investment in a new activity) in telecommunication industry using the empirical example of wireless markets. We highlight that investment incentives are positively related to the potential for technical progress. They also depend on market structure, competition intensity and penetration rate. We show that there is a target amount of investment for each national market that firms strive to achieve. We show that, from a social perspective, this target amount is the best amount that firms are encouraged to invest. Nonachievement of the target amount entails underinvestment, a fall in consumer surplus and welfare and may slow down technical progress. Employing a 30 countries dataset during 8 years, we have empirically found a change in investment behaviour according whether the target amount is achieved or not. A low margin per user may hamper the achievement of the target amount. As a result, the maximum consumer surplus as well as welfare occurs under imperfect competition and not under perfect competition.

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File URL: http://econstor.eu/bitstream/10419/60375/1/720226155.pdf
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Paper provided by International Telecommunications Society (ITS) in its series 23rd European Regional ITS Conference, Vienna 2012 with number 60375.

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Date of creation: 2012
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Handle: RePEc:zbw:itse12:60375
Contact details of provider: Web page: http://www.itseurope.org/

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  1. Philippe Aghion & Nicholas Bloom & Richard Blundell & Rachel Griffith & Peter Howitt, 2002. "Competition and innovation: an inverted U relationship," IFS Working Papers W02/04, Institute for Fiscal Studies.
  2. BOUCKAERT, Jan & VAN DIJK, Theon & VERBOVEN, Frank, 2010. "Access regulation, competition, and broadband penetration: An international study," Working Papers 2010020, University of Antwerp, Faculty of Applied Economics.
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  7. Audretsch, David B. & Baumol, William J. & Burke, Andrew E., 2001. "Competition policy in dynamic markets," International Journal of Industrial Organization, Elsevier, vol. 19(5), pages 613-634, April.
  8. Michael H. Riordan & Yongmin Chen, 2005. "Price and Variety in the Spokes Model," Discussion Papers 0405-20, Columbia University, Department of Economics.
  9. Kamien, Morton I & Schwartz, Nancy L, 1975. "Market Structure and Innovation: A Survey," Journal of Economic Literature, American Economic Association, vol. 13(1), pages 1-37, March.
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  11. 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.
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