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

Abstract

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

Hervas-Drane, Andres, Non-Cost-Raising Discrimination: A Rationale for Functional Separation in Broadband Open Access (September 26, 2011). Available at SSRN: https://ssrn.com/abstract=1647020 or http://dx.doi.org/10.2139/ssrn.1647020

Andres Hervas-Drane (Contact Author)

Bayes Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

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