Incumbent and Entrant Incentives with Network Interconnection: The Case of US Telecommunications
35 Pages Posted: 16 Apr 2009
Date Written: 2001
I examine how incumbents and entrants respond to prices for network interconnection in telecommunications. I find that low prices for entrants to lease incumbents’ facilities, exchange traffic, and buy incumbents’ services for resale increase entry. However, if prices for leasing incumbents’ facilities are low relative to incumbents’ retail prices, then less entry occurs, presumably because incumbents hinder entry to protect profits. Higher prices for exchanging traffic increase entrants’ market share, presumably because they target customers (such as Internet Service Providers) who receive more calls than they make. Low prices for reselling services do not cause entrants to choose reselling over other supply methods.
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