Non-Cost-Raising Discrimination: A Rationale for Functional Separation in Broadband Open Access
25 Pages Posted: 24 Jul 2010 Last revised: 17 Nov 2011
Date Written: September 26, 2011
I present a vertical differentiation model to assess the quality-wise strategy of an incumbent telecommunications operator under open access regimes. I show that it is always profitable for an incumbent subject to wholesale regulation to degrade wholesale quality in a non-recoverable fashion. The findings are robust to the number of competitors and the price cap level, unlike those predicted by the cost-raising discrimination paradigm. I also show that functional separation, a structural remedy aimed to separate the incumbent's wholesale and retail operations, better aligns supply-side incentives with those of consumers. The analysis suggests that structural remedies exhibit good properties to implement open access regimes.
Keywords: Broadband Regulation, Open Access, Quality of Service, Discrimination
JEL Classification: D42, L12, L15, L22, L42, L96
Suggested Citation: Suggested Citation