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Network Competition and Entry Deterrence

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  • Joan Calzada
  • Tommaso M. Valletti

Abstract

We develop a model of logit demand that extends the traditional duopoly framework of network competition to a multi‐firm industry. First, we show that incumbents establish the reciprocal access charge inefficiently below cost when they compete in prices but they behave efficiently if they compete in utilities. Secondly, we study how incumbents determine the industry‐wide access charge under the threat of entry. We show that 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 the access charge upwards.

Suggested Citation

  • Joan Calzada & Tommaso M. Valletti, 2008. "Network Competition and Entry Deterrence," Economic Journal, Royal Economic Society, vol. 118(531), pages 1223-1244, August.
    • Handle: RePEc:wly:econjl:v:118:y:2008:i:531:p:1223-1244
    DOI: 10.1111/j.1468-0297.2008.02167.x
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    JEL classification:

    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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