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Competition for Access: Spectrum Rights and Downstream Access in Wireless Telecommunications

26 Pages Posted: 24 Oct 2008 Last revised: 21 May 2014

Gijsbert Zwart

University of Groningen

Michiel J. Bijlsma

CPB Netherlands Bureau of Economic Policy Analysis; Tilburg Law and Economics Center (TILEC)

Date Written: October 1, 2008

Abstract

We study downstream entry and capacity choice in the market for wireless elecommunications, where licenses to use radio spectrum - an essential input - are in the hands of vertically integrated oligopolists. Prior to network construction these incumbents may offer contracts for capacity to an entrant, granting service-based access on the network they will construct. Alternatively, when spectrum trading is allowed, they may sell part of their license, allowing the entrant to build its own network and enter as an infrastructure player. We find that in this cournot setting access is generally provided, as incumbents compete to appropriate the profits of serving a differentiated market through the entrant. Although selling spectrum rights instead of network capacity leads to a loss of economies of scale in infrastructure construction, infrastructure-based entry may dominate as a result of a strategic effect. By delegating capacity choice to the entrant, the access providing incumbent can commit to compete more aggressively, causing its rival to reduce capacity.

Keywords: Telecommunications, Vertical Integration, Vertical Foreclosure, Strategic Delegation

JEL Classification: L13, L42, L96

Suggested Citation

Zwart, Gijsbert and Bijlsma, Michiel J., Competition for Access: Spectrum Rights and Downstream Access in Wireless Telecommunications (October 1, 2008). TILEC Discussion Paper No. 2008-037. Available at SSRN: https://ssrn.com/abstract=1287979 or http://dx.doi.org/10.2139/ssrn.1287979

Gijsbert Zwart (Contact Author)

University of Groningen ( email )

P.O. Box 800
9700 AH Groningen
Netherlands

Michiel J. Bijlsma

CPB Netherlands Bureau of Economic Policy Analysis ( email )

P.O. Box 80510
2508 GM The Hague, 2585 JR
Netherlands

Tilburg Law and Economics Center (TILEC)

Warandelaan 2
Tilburg, 5000 LE
Netherlands

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