Infrastructure Quality in Deregulated Industries: Is There an Underinvestment Problem?
University of St. Gallen - SEPS: Economics and Political Sciences
University of Zurich - Department of Economics Library; Centre for Economic Policy Research (CEPR)
University of Zurich - Department of Business Administration (IBW)
International Journal of Industrial Organization, Vol. 22, pp. 253-267, 2004
We investigate how various institutional settings affect a network provider's incentives to invest in infrastructure quality. Under reasonable assumptions on demand, investment incentives turn out to be smaller under vertical separation than under vertical integration, though we also provide counterexamples. The introduction of downstream competition for the market can sometimes improve incentives. With suitable non-linear access prices investment incentives under separation become identical to those under integration.
Keywords: Investment incentives, networks, quality, railways, vertical externality
JEL Classification: D42, L22, L43, L92Accepted Paper Series
Date posted: December 11, 2004
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