Natural Monopoly and Distorted Competition: Evidence from Unbundling Fiber-Optic Networks

Naoaki Minamihashi

Göteborg University

August 1, 2012

Bank of Canada Working Paper No 2012-26

Can regulation solve problems arising from a natural monopoly? This paper analyzes whether "unbundling," referring to regulations that enforce sharing of natural monopolistic infrastructure, prevents entrants from building new infrastructure. It models and estimates a dynamic entry game to evaluate the effects of regulation, using a dataset for construction of fiber-optic networks in Japan. The counterfactual exercise shows that forced unbundling regulation leads to a 24% decrease in the incidence of new infrastructure builders. This suggests, therefore, that when a new technology is being diffused, regulation to remove a natural monopoly conversely involves risks that incumbent monopolists' shares will increase.

Number of Pages in PDF File: 41

Keywords: Unbundling, FTTH, Natural Monopoly, Dynamic Structural Estimation, Telecom

JEL Classification: K23, L43, L96

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Date posted: August 1, 2012 ; Last revised: August 23, 2012

Suggested Citation

Minamihashi, Naoaki, Natural Monopoly and Distorted Competition: Evidence from Unbundling Fiber-Optic Networks (August 1, 2012). Bank of Canada Working Paper No 2012-26. Available at SSRN: http://ssrn.com/abstract=2121729 or http://dx.doi.org/10.2139/ssrn.2121729

Contact Information

Naoaki Minamihashi (Contact Author)
Göteborg University ( email )
Viktoriagatan 30
Goeteborg, 405 30
Feedback to SSRN

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