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Mobile network interconnection and investments

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  • Veith, Tobias

Abstract

Abstract In markets with competing interconnected networks like mobile telecommunication markets investments affect the investor’s and also any competitors’ profits. In a theoretical model it is shown that cost-reducing investments reduce the investor’s termination rates and increase competitors’ termination rates under the callingparty- network-pays regime. Moreover, investments increase off-net traffic from the investor’s network but also from competitors’ networks. Regulation changes the effect on competitors’ termination rates but all other effects remain the same or are strengthened. Empirical results support the theoretical findings concerning the investor’s termination rates and the findings on off-net traffic. Competitors’ termination rates decrease. The negative termination rate effect even outweighs the quantity effect in the competitors’ profit functions. Testing for a common regulation-investment effect provides evidence that the negative investment externality is not due to regulation.

Suggested Citation

  • Veith, Tobias, 2009. "Mobile network interconnection and investments," ZEW Discussion Papers 09-071, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    • Handle: RePEc:zbw:zewdip:09071
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    References listed on IDEAS

    as
    1. João Vareda, 2007. "Unbundling and Incumbent Investment in Quality Upgrades and Cost Reduction," Working Papers 31, Portuguese Competition Authority.
    2. Tommaso M. Valletti & Carlo Cambini, 2005. "Investments and Network Competition," RAND Journal of Economics, The RAND Corporation, vol. 36(2), pages 446-468, Summer.
    3. Ralf Dewenter & Justus Haucap, 2005. "The Effects of Regulating Mobile Termination Rates for Asymmetric Networks," European Journal of Law and Economics, Springer, vol. 20(2), pages 185-197, September.
    4. Wright, Julian, 2002. "Access Pricing under Competition: An Application to Cellular Networks," Journal of Industrial Economics, Wiley Blackwell, vol. 50(3), pages 289-315, September.
    5. Michael Carter & Julian Wright, 2003. "Asymmetric Network Interconnection," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 22(1), pages 27-46, February.
    6. Peitz, Martin, 2005. "Asymmetric access price regulation in telecommunications markets," European Economic Review, Elsevier, vol. 49(2), pages 341-358, February.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    regulation; mobile telecommunications; investments; interconnection;

    JEL classification:

    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software
    • L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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