Co-Investments and Tacit Collusion in Regulated Network Industries: Experimental Evidence

Abstract

Several regulatory authorities have recently allowed competing network operators to co-invest in network infrastructure. With the use of a laboratory experiment, we investigate the impact of co-investments on competition in regulated network industries, particularly in comparison to unilateral and duplicate investments. Our main finding is that co-investment (i.e., cooperation at the infrastructure level) facilitates tacit collusion (i.e., cooperation at the retail level) significantly, which questions the positive evaluation of co-investments with respect to consumers’ surplus in the theoretical literature.

Keywords: experimental economics, network industries, co-investment, tacit collusion, regulation

JEL Classification: C92, L13, L50, L97