Price Squeezes and Vertical Discrimination on Next Generation Access Networks

Abstract:     
Next generation access networks (NGANs) are in many cases likely to be supplied by vertically integrated firms, that is, firms that both wholesale access and sell services downstream to end-users. A long standing concern of regulators is that such firms may engage in anti-competitive price squeezes. This paper examines this concern and reviews the difficulties associated with conventional imputation tests in an NGAN context. The paper is organised as follows. Section 2 of the paper provides an analytical framework for understanding vertical integration, vertical discrimination, including price squeezes, and the incentives to engage in such behaviour. Section 3 explains why the incentives for a NGAN provider to vertically discriminate are sharply reduced as compared with a traditional vertically integrated telecommunications carrier. Section 4 considers regulatory approaches to the price squeeze. Section 5 focuses on how regulators are also concerned with inefficiently high prices and derives implications for the efficient setting of NGAN access charges.

Number of Pages in PDF File: 26

Keywords: Next generation access networks, Price squeezes, Vertical integration, Vertical discrimination, Significant market power, Imputation tests, Broadband, Telecommunications

working papers series