Universal Service and Entry: The Role of Uniform Pricing and Coverage Constraints

30 Pages Posted: 14 May 2001

See all articles by Tommaso M. Valletti

Tommaso M. Valletti

Imperial College Business School; Centre for Economic Policy Research (CEPR)

Steffen Hoernig

Nova School of Business and Economics

Pedro P. Barros

Universidade Nova de Lisboa

Date Written: May 2001

Abstract

Universal service objectives are pervasive in telecommunications, and have gained new relevance after liberalization and the introduction of competition in many markets. Despite their policy relevance, little work has been done allowing for a thorough discussion of instruments designed to achieve universal service objectives under competition. We intend to fill this gap, and consider various policy instruments, such as constraints on pricing and coverage. It is shown that these are not competitively neutral and may have far-reaching strategic effects. Equilibrium coverage of both incumbent and entrant may be lower than without regulation, and firms may even (noncooperatively) leave each others' markets to lessen competitive pressure in their remaining markets. These effects depend on which measures are imposed at the same time, thus no single measure can be evaluated in isolation. We also point out that different groups of consumers are affected in different ways, making welfare comparisons difficult.

Keywords: Competition, coverage constraint, uniform pricing constraint, universal service

JEL Classification: L51

Suggested Citation

Valletti, Tommaso M. and Hoernig, Steffen and Pita Barros, Pedro Luis, Universal Service and Entry: The Role of Uniform Pricing and Coverage Constraints (May 2001). CEPR Discussion Paper No. 2789. Available at SSRN: https://ssrn.com/abstract=269385

Tommaso M. Valletti (Contact Author)

Imperial College Business School ( email )

South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Steffen Hoernig

Nova School of Business and Economics ( email )

Universidade Nova de Lisboa
Campus de Campolide
Lisboa, 1099-032
Portugal
+351-213801600 (Phone)

HOME PAGE: http://docentes.fe.unl.pt/~shoernig/

Pedro Luis Pita Barros

Universidade Nova de Lisboa ( email )

Campus de Campolide
Lisboa, 1099-032
Portugal
+351 21 383 3624 (Phone)
+351 21 388 6073 (Fax)

HOME PAGE: http://ppbarros.fe.unl.pt

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