Antitrust & Competition Policy Blog

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

A Member of the Law Professor Blogs Network

Tuesday, May 3, 2011

Coexistence of Service- and Facility-Based Competition: The Relevance of Access Prices for "Make-or-Buy"-Decisions

Posted by D. Daniel Sokol

Christian M. Bender (University of Giessen) and Georg Götz (University of Giessen) discuss Coexistence of Service- and Facility-Based Competition: The Relevance of Access Prices for "Make-or-Buy"-Decisions.

ABSTRACT: This paper models competition between two firms, which provide broadband Internet access in regional markets with different population densities. The firms, an incumbent and an entrant, differ in two ways. First, consumers bear costs when switching to the entrant. Second, the entrant faces a make-or-buy decision in each region and can choose between service-based and facility-based entry. The usual trade-off between static and dynamic eficiency does not apply in the sense that higher access fees might yield both, lower retail prices and higher total coverage. This holds despite a strategic effect in the entrant's investment decision. While investment lowers marginal costs in regions with facility-based entry, it intensifies competition in all regions. We show that the cost-reducing potential of investments dominates the strategic effect: Higher access fees increase facility-based competition, decrease retail prices and i! ncrease total demand.

http://lawprofessors.typepad.com/antitrustprof_blog/2011/05/coexistence-of-service-and-facility-based-competition-the-relevance-of-access-prices-for-make-or-buy.html

| Permalink

TrackBack URL for this entry:

http://www.typepad.com/services/trackback/6a00d8341bfae553ef0147e3ccb9fc970b

Listed below are links to weblogs that reference Coexistence of Service- and Facility-Based Competition: The Relevance of Access Prices for "Make-or-Buy"-Decisions :

Comments

Post a comment