Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

Wednesday, May 4, 2011

Access Regulation, Entry and the Investment Ladder in Telecommunications

Posted by D. Daniel Sokol

Fabio Manenti (Università di Padova) and Antonio Sciala' (Universita' Roma Tre) explain Access Regulation, Entry and the Investment Ladder in Telecommunications.

ABSTRACT: This paper presents a model of competition between an incumbent and an entrant firm in telecommunications. The entrant has the option to enter the market with or without having preliminary invested in its own infrastructure; in case of facility based entry, the entrant has also the option to invest in the provision of enhanced services. In case of resale based entry the entrant needs access to the incumbent network. Unlike the rival, the incumbent has always the option to upgrade the existing network to provide advanced services. We study the impact of access regulation on the type of entry and on firms' investments. Without regulation, we find that the incumbent sets the access charge to prevent resale based entry and this overstimulates rival's investment that may turn out to be socially inefficient. Access regulation may discourage welfare enhancing investments, thus also inducing a socially inefficient outcome. We ex! tend the model to account for negotiated interconnection in case of facilities based entry.

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A successful society is characterized by a rising living standard for its population, increasing investment in factories and basic infrastructure, and the generation of additional surplus, which is invested in generating new discoveries in science and technology.

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