Level of Access and Infrastructure Investment in Network Industries
23 Pages Posted: 13 Jun 2013
Date Written: June 07, 2013
In this paper we study the effect of the terms of access to an incumbent's infrastructure on an entrant's incentives to build its own infrastructure. Setting a high level of access (e.g., a resale arrangement), which requires relatively small up-front investment for entry, accelerates market entry, but at the same time delays the deployment of the entrant's infrastructure. This is also true for a lower access price set for a given access level. We show that the socially optimal access price can vary non-monotonically with the level of access. We also consider two levels of access, and show that providing the entrant with multiple levels of access delays infrastructure building.
Keywords: Level of access, Infrastructure investment, Network industries
JEL Classification: L1, L5, L9
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