Infrastructure Quality in Deregulated Industries: Is There an Underinvestment Problem?

25 Pages Posted: 16 May 2003

See all articles by Men-Andri Benz

Men-Andri Benz

University of Zurich - Department of Business Administration (IBW)

Stefan Buehler

University of St. Gallen - SEPS: Economics and Political Sciences

Armin Schmutzler

University of Zurich - Department of Economics; Centre for Economic Policy Research (CEPR)

Date Written: March 2003

Abstract

We investigate how various institutional settings affect a network provider's incentives to invest in infrastructure quality. Under reasonable assumptions on demand, investment incentives turn out to be smaller under vertical separation than under vertical integration, though we also provide counter-examples. The introduction of downstream competition for the market can sometimes improve incentives. With suitable non-linear access prices investment incentives under separation become identical to those under integration.

Keywords: Investment incentives, networks, quality, vertical externality

JEL Classification: D42, L22, L43

Suggested Citation

Benz, Men-Andri and Buehler, Stefan and Schmutzler, Armin, Infrastructure Quality in Deregulated Industries: Is There an Underinvestment Problem? (March 2003). CEPR Discussion Paper No. 3836, Available at SSRN: https://ssrn.com/abstract=408540

Men-Andri Benz

University of Zurich - Department of Business Administration (IBW) ( email )

Hottingerstrasse 10
Plattenstrasse 14
Zurich 8032, 8032
Switzerland

Stefan Buehler

University of St. Gallen - SEPS: Economics and Political Sciences ( email )

FGN-HSG
Varnbuelstr. 19
CH-9000 St. Gallen
Switzerland
+41-71-224-2303 (Phone)

Armin Schmutzler (Contact Author)

University of Zurich - Department of Economics ( email )

Zürich, CH-8006
Switzerland

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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