Co-Investments and Tacit Collusion in Regulated Network Industries: Experimental Evidence

Abstract:     
Several regulatory authorities have recently allowed competing network operators to co-invest in network infrastructure. With the use of a laboratory experiment, we investigate the impact of co-investments on network coverage, competition and consumers' surplus in regulated network industries. We find that, on the one hand, co-investments are not a significant driver of new infrastructure investments beyond the level achieved by access regulation and seem to facilitate tacit price collusion. On the other hand, co-investments economize on infrastructure investment costs and necessitate communication, which partially offset the aforementioned effects with respect to consumers' surplus. By contrast, we find that duplication of infrastructure, which allows for actual infrastructure-based competition, has an unambiguously positive effect on consumers' surplus. Consequently, our results bear important implications for the ongoing debate on the appropriate framework for the regulation of network industries and highlight that regulators should evaluate the possibility to allow for co-investments with scrutiny.

Number of Pages in PDF File: 30

Keywords: experimental economics, network industries, co-investment, collusion, regulation

JEL Classification: C92, L13, L50, L97

working papers series