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Technology investment and alternative regulatory regimes with demand uncertainty

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  • Cambini, Carlo
  • Silvestri, Virginia

Abstract

A vertically integrated incumbent and an OLO (Other Licensed Operator) compete in the market for broadband access. The incumbent has the option to invest in building a Next Generation Network that covers all urban areas with similar demand structures. The investment return in terms of demand increase is uncertain. We compare the impact of different access regulation regimes – full regulation, partial regulation (only the copper network is regulated), risk sharing – on investment incentives and social welfare. We find that, when the alternative for the OLO is using the copper network rather than leaving the market entirely, exclusion of the OLO does not necessarily happen in equilibrium even when the incumbent is better in offering value-added services. Risk sharing emerges as the most preferable regime both from a consumer and a social welfare perspective for a large range of parameters.

Suggested Citation

  • Cambini, Carlo & Silvestri, Virginia, 2012. "Technology investment and alternative regulatory regimes with demand uncertainty," Information Economics and Policy, Elsevier, vol. 24(3), pages 212-230.
    • Handle: RePEc:eee:iepoli:v:24:y:2012:i:3:p:212-230
    DOI: 10.1016/j.infoecopol.2012.08.003
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    References listed on IDEAS

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    More about this item

    Keywords

    Investment; Regulation; Access pricing; New technology; Risk sharing;
    All these keywords.

    JEL classification:

    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications

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