Skip to main content
SpringerLink
Log in

Quality upgrades and bypass under mandatory access

  • Original Article
  • Published:
Journal of Regulatory Economics Aims and scope Submit manuscript

Abstract

We analyze the interaction between the incumbent’s incentive to upgrade the quality of its network and the entrant’s incentive to build a bypass network when the regulator sets a two-part access tariff to the incumbent’s network. Under this context, the entrant’s investment in a bypass network is delayed with a higher incumbent’s investment in quality. Moreover, the possibility of investment in a bypass network by the entrant has a positive effect on the incumbent’s incentive to upgrade quality. We show that a regulator cannot achieve the first best with a constant access tariff. If he wants to design an alternative welfare improving access tariff, he should set an access fee increasing (decreasing) in quality if the business-stealing effect of quality upgrades is weak (strong). The analysis suggests that if the entrant’s investment costs are declining or its market share is increasing over time, it is not always optimal to require the incumbent to lease facilities at cost-based prices.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

References

  • Bourreau M., Dogan P. (2005) Unbundling the local loop. European Economic Review 49(1): 173–199

    Article  Google Scholar 

  • Brito, D., Pereira, P., & Vareda, J. (2009). Incentives to invest and give access to a non-regulated next generation network. NET Institute, working paper 08-10.

  • Brito D., Pereira P., Vareda J. (2010) Can two-part tariffs promote efficient investment on next generation networks?. International Journal of Industrial Organization 28: 323–333

    Article  Google Scholar 

  • Cambini C., Jiang Y. (2009) Broadband investment and regulation: A literature review. Telecommunications Policy 33: 559–574

    Article  Google Scholar 

  • De Bijl P., Peitz M. (2004) Unbundling the local loop: One way access and imperfect competition. In: Dewenter R., Haucap J. (eds) Access pricing: Theory and practice. Elsevier Science, Amsterdam

    Google Scholar 

  • Foros O. (2004) Strategic investments with spillovers, vertical integration and foreclosure in the broadband access market. International Journal of Industrial Organization 22: 1–24

    Article  Google Scholar 

  • Friederiszick, H. W., Grajek, M., & Roller, L.-H. (2007). Analysing the relationship between regulation and investment in the telecom sector. ESMT white paper, working paper 108-01.

  • Gans J. (2001) Regulating private infrastructure investment: Optimal pricing for access to essential facilities. Journal of Regulatory Economics 20(2): 167–189

    Article  Google Scholar 

  • Gans J., King S. (2004) Access holidays and the timing of infrastructure investment. Economic Record 80: 89–100

    Article  Google Scholar 

  • Gans J., Williams P. (1999) Access regulation and the timing of infrastructure investment. Economic Record 75(229): 127–137

    Article  Google Scholar 

  • Guthrie G. (2006) Regulating infrastructure: The impact on risk and investment. Journal of Economic Literature 44: 925–972

    Article  Google Scholar 

  • Hori K., Mizuno K. (2006) Access pricing and investment with stochastically growing demand. International Journal of Industrial Organization 24(4): 795–808

    Article  Google Scholar 

  • Hori K., Mizuno K. (2009) Competition schemes and investment in network infrastructure under uncertainty. Journal of Regulatory Economics 35(2): 179–200

    Article  Google Scholar 

  • ITU. (2001). General overview of NGN. ITU-T Recommendation Y.2001.

  • Jorde T. M., Sidak J. G., Teece D. J. (2000) Innovation, investments, and unbundling. Yale Journal of Regulation 17: 1–37

    Google Scholar 

  • Klumpp T., Su X. (2010) Open access and dynamic efficiency. American Economic Journal—Microeoconomics 2: 64–96

    Article  Google Scholar 

  • Kotakorpi K. (2006) Access price regulation, investment and entry in telecommunications. International Journal of Industrial Organization 24: 1013–1020

    Article  Google Scholar 

  • Oxera. (2009). Ducting the issue: What role might duct access play on a NGA environment? Oxera.

  • Valletti T. (1998) Two-part access pricing and imperfect competition. Information Economics & Policy 10: 305–323

    Article  Google Scholar 

  • Vareda J. (2010) Access regulation and the incumbent investment in quality upgrades and cost reduction. Telecommunications Policy 34(11): 697–710

    Article  Google Scholar 

  • Vareda, J., & Hoernig, S. (2010). Racing for investment under mandatory access. The B.E. Journal of Economic Analysis & Policy: Contributions, 10(1), Art. 67.

  • WIK. (2008). Leading European study shows business case for next generation broadband favours former incumbents. WIK.

Download references

Author information

Authors and Affiliations

  1. Autoridade da Concorrência, Avenida de Berna n° 19, 1050-037, Lisbon, Portugal

    João Vareda

  2. Instituto Superior Técnico, Instituto de Sistemas e Robótica, Av. Rovisco Pais, 1049-001, Lisbon, Portugal

    João Vareda

Authors
  1. João Vareda
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to João Vareda.

Rights and permissions

Reprints and permissions

About this article

Cite this article

Vareda, J. Quality upgrades and bypass under mandatory access. J Regul Econ 40, 177–197 (2011). https://doi.org/10.1007/s11149-011-9155-2

Download citation

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s11149-011-9155-2

Keywords

JEL Classification

Search

Navigation