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Strategic bypass deterrence

Author

Listed:
  • Francis Bloch

    (Université Paris 1
    Université Catholique de Louvain)

  • Axel Gautier

    (University of Liege (ULg), Bat B31, Quartier Agora
    Université Catholique de Louvain)

Abstract

In liberalized network industries, competitors can either compete for service using the existing infrastructure (access) or deploy their own capacity (bypass). We revisit this make-or-buy problem making two contributions to the literature. First we analyze both the profit maximizing behavior of an incumbent and the welfare maximizing behavior when the entrant chooses between access and bypass. Second, we extend the baseline model studied in the literature by allowing for fixed costs of network installation. By analogy to the literature on strategic entry deterrence, we distinguish three régimes of blockaded bypass, deterred bypass and accommodated bypass depending on the entrant’s unit cost. We show that the make-or-buy decision of the entrant is not necessarily technologically efficient: when bypass is chosen, it is always the cheapest option but access may be chosen when it is not cost effective.

Suggested Citation

  • Francis Bloch & Axel Gautier, 2017. "Strategic bypass deterrence," Journal of Regulatory Economics, Springer, vol. 52(2), pages 189-210, October.
    • Handle: RePEc:kap:regeco:v:52:y:2017:i:2:d:10.1007_s11149-017-9337-7
    DOI: 10.1007/s11149-017-9337-7
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    Cited by:

    1. Malin Arve & Øystein Foros & Hans Jarle Kind, 2022. "Access price structure and entrant build-or-buy incentives in mobile markets," Journal of Regulatory Economics, Springer, vol. 61(1), pages 67-87, February.
    2. Keizo Mizuno & Ichiro Yoshino, 2015. "Overusing a bypass under cost-based access regulation: underinvestment with spillovers," Journal of Regulatory Economics, Springer, vol. 47(1), pages 29-57, February.

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    More about this item

    Keywords

    Make-or-buy; Access price; Bypass;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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