Regulation and Investment in Network Industries: Evidence from European Telecoms

32 Pages Posted: 14 Aug 2009

See all articles by Michal Grajek

Michal Grajek

ESMT European School of Management and Technology

Lars-Hendrik Röller

ESMT European School of Management and Technology; Centre for Economic Policy Research (CEPR); WZB Berlin Social Science Center - Competitiveness and Industrial Change

Date Written: June 15, 2009

Abstract

We provide evidence of an inherent trade-off between access regulation and investment incentives in telecommunications by using a comprehensive data set covering 70 fixed-line operators in 20 countries over 10 years. Our econometric model accommodates: different investment incentives for incumbents and entrants; a strategic interaction of entrants’ and incumbents’ investments; and endogenous regulation. We find access regulation to negatively affect both total industry and individual carrier investment. Thus promoting market entry by means of regulated access undermines incentives to invest in facilities-based competition. Moreover, we find evidence of a regulatory commitment problem: higher incumbents’ investments encourage provision of regulated access.

Keywords: telecommunications, access regulation, unbundling, investment

JEL Classification: C51, L59, L96

Suggested Citation

Grajek, Michal and Röller, Lars-Hendrik, Regulation and Investment in Network Industries: Evidence from European Telecoms (June 15, 2009). ESMT Working Paper No. 09-004, Available at SSRN: https://ssrn.com/abstract=1448666 or http://dx.doi.org/10.2139/ssrn.1448666

Michal Grajek (Contact Author)

ESMT European School of Management and Technology ( email )

Schlossplatz 1
Berlin, 10178
Germany

Lars-Hendrik Röller

ESMT European School of Management and Technology ( email )

Schlossplatz 1
Berlin, 10178
Germany

HOME PAGE: http://www.esmt.org/eng/faculty-research/lars-hendrik-roeller/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

WZB Berlin Social Science Center - Competitiveness and Industrial Change ( email )

Reichpietschufer 50
10785 Berlin
Germany
+49 30 2549 1440 (Phone)
+49 30 2549 1442 (Fax)

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