Co-Investment, Uncertainty, and Opportunism: Ex-Ante and Ex-Post Remedies

31 Pages Posted: 10 Feb 2020

See all articles by Marc Bourreau

Marc Bourreau

Telecom ParisTech

Carlo Cambini

Politecnico di Torino & EUI - Florence School of Regulation; European University Institute - Robert Schuman Centre for Advanced Studies (RSCAS)

Steffen Hoernig

Nova SBE, Universidade Nova de Lisboa

Ingo Vogelsang

Boston University - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Date Written: 2020

Abstract

In this paper, we study the impact of co-investment by incumbents and entrants on the roll-out of network infrastructures under demand uncertainty. We show that if entrants can wait to co-invest until demand is realized, the incumbents' investment incentives are reduced and total coverage can be lower than in a benchmark with earlier co-investment. We consider two remedies to correct these distortions: (i) co-investment options purchased ex-ante by entrants from incumbents, and (ii) risk premia paid ex-post by entrants. We show that co-investment options cannot fully reestablish total coverage, while premia can do so in most cases, though at the cost of less entry. Finally, we show that an appropriate combination of ex-ante and ex-post remedies can improve welfare.

Keywords: co-investment, uncertainty, opportunism, options, risk premia

JEL Classification: L960, L510

Suggested Citation

Bourreau, Marc and Cambini, Carlo and Hoernig, Steffen and Vogelsang, Ingo, Co-Investment, Uncertainty, and Opportunism: Ex-Ante and Ex-Post Remedies (2020). CESifo Working Paper No. 8078, Available at SSRN: https://ssrn.com/abstract=3535288

Marc Bourreau (Contact Author)

Telecom ParisTech ( email )

46, rue Barrault
Paris Cedex 13, F-75634
France

Carlo Cambini

Politecnico di Torino & EUI - Florence School of Regulation ( email )

Corso Duca degli Abruzzi, 24
Torino, Torino 10129
Italy
+390115647292 (Phone)
+390115647299 (Fax)

European University Institute - Robert Schuman Centre for Advanced Studies (RSCAS) ( email )

Villa La Fonte, via delle Fontanelle 18
50016 San Domenico di Fiesole
Florence, Florence 50014
Italy

Steffen Hoernig

Nova SBE, Universidade Nova de Lisboa ( email )

Campus De Carcavelos
Rua Da Holanda 1
Carcavelos, 2775-405
Portugal
+351-213801600 (Phone)

HOME PAGE: http://https://www2.novasbe.unl.pt/en/faculty-research/faculty/faculty-detail/id/46/steffen-hoernig

Ingo Vogelsang

Boston University - Department of Economics ( email )

270 Bay State Road
Boston, MA 02215
United States

CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Poschinger Str. 5
Munich, DE-81679
Germany

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