Competition and Access Price Regulation with Multiple Networks

Abstract

We develop a framework, extending the conventional duopoly model by replacing the Hotelling line with a simplex in high-dimension spaces, to study the competition and access regulation of multiple networks. We first characterize the competitive equilibrium when the substitutabilities of the networks are not too high, or the access charges are nearly cost-based. We then analyze how the equilibrium market shares respond to marginal variations in the access charges under various regimes of access regulation, and thereby examine the efficiency implications of such regulation regimes. In particular, we analyze the asymmetric scenario in which some networks are incumbent and some are entrants. It is shown that some existing results of the duopoly do not extend to a multi-firm setting, largely because regulation of multiple networks is structurally far richer.

Keywords: telecommunications, oligopoly, network competition, access regulation

JEL Classification: L96, L51, D43