Access Regulation and Welfare

In a 2006 paper, Graeme Guthrie underlined that “[T]he impact of access price level on investment is not yet fully understood” and that “even less is known about the overall impact on welfare” (Guthrie 2006, p. 965). Although important progress has been made on the former issue, the latter remains largely underinvestigated. This paper contributes to addressing this question by analyzing the optimal access price in different investment games. Our main findings are as follows: 1. When only one firm can invest and when only service-based competition is feasible, the optimal access price is such as the flat part is as high as possible and the variable part equals the marginal cost. 2. The optimal variable part is lower when only service-based competition is possible than when several firms can invest, although there is too much duplication in the latter case. 3. When several firms can invest, the optimal access price is such as the flat part is as high as possible and the variable part is higher than the marginal cost. These results arise because the variable part determines both private incentives to invest and to duplicate and the extent to which investment and duplication are socially desirable.