Network Competition and Entry Deterrence

25 Pages Posted: 22 Feb 2006

See all articles by Tommaso M. Valletti

Tommaso M. Valletti

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

Joan Calzada

University of Barcelona - Department of Political Economics

Multiple version iconThere are 3 versions of this paper

Date Written: November 2005

Abstract

We develop a model of logit demand that extends to a multi-firm industry the traditional duopoly framework of network competition with access charges. Firstly, we show that, when incumbents do not face the threat of entry and compete in prices, they inefficiently establish the reciprocal access charge below cost. This inefficiency disappears if incumbents compete in utilities instead of prices. Secondly, we study how incumbents change their choices under the threat of entry when they determine an industry-wide (non-discriminatory) access charge. We show how incumbents may accommodate all possible entrants, only a group of them, or may completely deter entry. When entry deterrence is the preferred option, incumbents distort upwards the access charges.

Keywords: Telecommunications, interconnection, entry deterrence

JEL Classification: L41

Suggested Citation

Valletti, Tommaso M. and Calzada, Joan, Network Competition and Entry Deterrence (November 2005). CEPR Discussion Paper No. 5381. Available at SSRN: https://ssrn.com/abstract=886366

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

Joan Calzada

University of Barcelona - Department of Political Economics ( email )

Av. Diagonal, 696
Barcelona, 08034
Spain
+34 93 402 1933 (Phone)
+34 93 402 4573 (Fax)

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