Bank of Canada Working Paper No 2012-26
41 Pages Posted: 1 Aug 2012 Last revised: 23 Aug 2012
Date Written: August 1, 2012
Can regulation solve problems arising from a natural monopoly? This paper analyzes whether "unbundling," referring to regulations that enforce sharing of natural monopolistic infrastructure, prevents entrants from building new infrastructure. It models and estimates a dynamic entry game to evaluate the effects of regulation, using a dataset for construction of fiber-optic networks in Japan. The counterfactual exercise shows that forced unbundling regulation leads to a 24% decrease in the incidence of new infrastructure builders. This suggests, therefore, that when a new technology is being diffused, regulation to remove a natural monopoly conversely involves risks that incumbent monopolists' shares will increase.
Keywords: Unbundling, FTTH, Natural Monopoly, Dynamic Structural Estimation, Telecom
JEL Classification: K23, L43, L96
Suggested Citation: Suggested Citation
Minamihashi, Naoaki, Natural Monopoly and Distorted Competition: Evidence from Unbundling Fiber-Optic Networks (August 1, 2012). Bank of Canada Working Paper No 2012-26. Available at SSRN: https://ssrn.com/abstract=2121729 or http://dx.doi.org/10.2139/ssrn.2121729