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Daniel Schnurr - One of the best experts on this subject based on the ideXlab platform.
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Wholesale Competition, Open Access Regulation and Tacit Collusion
SSRN Electronic Journal, 2016Co-Authors: Niklas Horstmann, Jan Kraemer, Daniel SchnurrAbstract:Although the Regulation of Access to an essential upstream resource is a perennial issue for policymakers and industry stakeholders, a set of new issues arises when there is more than one vertically integrated Access provider such that competition at the wholesale level may emerge in addition to retail competition. Especially in the likely case of a highly concentrated (duopoly) wholesale market the question arises whether regulatory intervention is (still) warranted. Evidently, the answer to this question will have direct ramifications on how regulators and competition authorities should deal with this kind of market structure, but also on whether authorities should promote the entry of a second integrated Access provider in markets in which the essential input is currently supplied monopolistically.Albeit not confined to this context, the analysis of this market scenario of competing Access providers is particularly relevant for the telecommunications industry. Due to technological progress and consolidation both the fixed and the mobile industries are characterized by few vertically integrated firms, as well as several non-integrated resellers that rely on Access to an upstream resource. On the one hand, with respect to fixed networks, technological progress led to the roll out of new fiber-optic networks as well as the evolution of broadband cable networks, which both created new vertically integrated firms that compete most notably in densely populated urban areas with the traditional telecommunications incumbent. On the other hand, mobile telecommunications markets recently experienced a wave of mergers and acquisitions that reduced the number of independent operators maintaining a distinct cellular infrastructure, thus increasing market concentration at the wholesale level. We consider the market scenario where wholesale Access for a non-integrated reseller is provided competitively by two vertically integrated firms. In a continuous-time economic laboratory experiment with both student and expert participants we compare market outcomes under different modes of wholesale competition as well as under an open Access Regulation preventing a margin squeeze. In this vein and in the spirit of a more behaviorally oriented Regulation, this experimental analysis serves as a regulatory testbed, which points at possible behavioral issues that may arise in practice. We find that wholesale competition can facilitate tacit collusion, which yields wholesale and retail prices even above the monopoly level. We draw on the literature on upstream collusion and show in a theoretical analysis that incentives for tacit collusion are actually higher under wholesale competition if an infinitely repeated game context is considered. We demonstrate that wholesale competition may be intensified by a simple price commitment rule, which in turn restores the theoretical prediction to the extent that Access prices are lower than under a wholesale monopoly. Moreover, the experimental results give a clear indication regarding the theoretically ambiguous effect of margin squeeze Regulation on retail market prices, showing that consumers are never better off compared to no Regulation in both the monopoly and the duopoly wholesale scenario.
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Wholesale Competition, Open Access Regulation and Tacit Collusion: Experimental Evidence
SSRN Electronic Journal, 2015Co-Authors: Niklas Horstmann, Jan Kraemer, Daniel SchnurrAbstract:We consider the market scenario where wholesale Access for a non-integrated reseller is provided competitively by two vertically integrated firms. In a continuous-time economic laboratory experiment with both student and expert participants we compare market outcomes under different modes of wholesale competition as well as under an open Access Regulation preventing a margin squeeze. We find that wholesale competition can facilitate tacit collusion, which yields wholesale and retail prices even above the monopoly level. However, we show that a simple price commitment rule can substantially reduce tacit collusion. Moreover, we do not find evidence that margin squeeze Regulation benefits consumers.
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A unified framework for open Access Regulation of telecommunications infrastructure
Telecommunications Policy, 2014Co-Authors: Jan Kramer, Daniel SchnurrAbstract:The concept of open Access (OA) plays a central role in the ongoing academic and political debate on the appropriate regulatory framework for next-generation Access networks in Europe. However, clear policy conclusions on the effect of OA Regulation were usually precluded by a fundamental lack in common understanding what actually defines an OA policy and along which dimensions of OA Regulation can be structured. This paper attempts to reconcile these diverse views by offering a definition and a conceptual framework by which OA endeavors can be identified and uniquely classified. The framework encompasses, among others, mandated OA Regulation of vertically integrated firms, public-sector participation, co-investments, and OA in the context of vertical separation. Along this framework, the extant economic literature is surveyed with regard to aspects of competition and social welfare, investment and innovation, as well as practical and legal issues. Based on these insights, a policy guideline is developed that shall assist policy makers in identifying the appropriate OA scenario for the Regulation of telecommunications infrastructure. HighlightsThe paper reconciles the diverse views on open Access Regulation.A unified definition and a conceptual framework for open Access Regulation are proposed.Relevant open Access scenarios are evaluated on the basis of a literature survey.A policy decision guideline for open Access Regulation is derived.
Larshendrik Roller - One of the best experts on this subject based on the ideXlab platform.
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Regulation and investment in network industries evidence from european telecoms
The Journal of Law and Economics, 2012Co-Authors: Michal Grajek, Larshendrik RollerAbstract:AbstractWe provide evidence of an inherent trade-off between Access Regulation and investment incentives in telecommunications by using a comprehensive data set covering more than 70 fixed-line operators in 20 countries over 10 years. Our econometric model accommodates different investment incentives for incumbents and entrants, a strategic interaction of entrants’ and incumbents’ investments, and endogenous Regulation. We find Access Regulation to have a negative effect on both total industry and individual carrier investment. Thus, promoting market entry by means of regulated Access undermines incentives to invest in facilities-based competition. Moreover, we find evidence of a regulatory commitment problem: higher investments by incumbents encourage regulated Access provision.
Niklas Horstmann - One of the best experts on this subject based on the ideXlab platform.
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Wholesale Competition, Open Access Regulation and Tacit Collusion
SSRN Electronic Journal, 2016Co-Authors: Niklas Horstmann, Jan Kraemer, Daniel SchnurrAbstract:Although the Regulation of Access to an essential upstream resource is a perennial issue for policymakers and industry stakeholders, a set of new issues arises when there is more than one vertically integrated Access provider such that competition at the wholesale level may emerge in addition to retail competition. Especially in the likely case of a highly concentrated (duopoly) wholesale market the question arises whether regulatory intervention is (still) warranted. Evidently, the answer to this question will have direct ramifications on how regulators and competition authorities should deal with this kind of market structure, but also on whether authorities should promote the entry of a second integrated Access provider in markets in which the essential input is currently supplied monopolistically.Albeit not confined to this context, the analysis of this market scenario of competing Access providers is particularly relevant for the telecommunications industry. Due to technological progress and consolidation both the fixed and the mobile industries are characterized by few vertically integrated firms, as well as several non-integrated resellers that rely on Access to an upstream resource. On the one hand, with respect to fixed networks, technological progress led to the roll out of new fiber-optic networks as well as the evolution of broadband cable networks, which both created new vertically integrated firms that compete most notably in densely populated urban areas with the traditional telecommunications incumbent. On the other hand, mobile telecommunications markets recently experienced a wave of mergers and acquisitions that reduced the number of independent operators maintaining a distinct cellular infrastructure, thus increasing market concentration at the wholesale level. We consider the market scenario where wholesale Access for a non-integrated reseller is provided competitively by two vertically integrated firms. In a continuous-time economic laboratory experiment with both student and expert participants we compare market outcomes under different modes of wholesale competition as well as under an open Access Regulation preventing a margin squeeze. In this vein and in the spirit of a more behaviorally oriented Regulation, this experimental analysis serves as a regulatory testbed, which points at possible behavioral issues that may arise in practice. We find that wholesale competition can facilitate tacit collusion, which yields wholesale and retail prices even above the monopoly level. We draw on the literature on upstream collusion and show in a theoretical analysis that incentives for tacit collusion are actually higher under wholesale competition if an infinitely repeated game context is considered. We demonstrate that wholesale competition may be intensified by a simple price commitment rule, which in turn restores the theoretical prediction to the extent that Access prices are lower than under a wholesale monopoly. Moreover, the experimental results give a clear indication regarding the theoretically ambiguous effect of margin squeeze Regulation on retail market prices, showing that consumers are never better off compared to no Regulation in both the monopoly and the duopoly wholesale scenario.
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Wholesale Competition, Open Access Regulation and Tacit Collusion: Experimental Evidence
SSRN Electronic Journal, 2015Co-Authors: Niklas Horstmann, Jan Kraemer, Daniel SchnurrAbstract:We consider the market scenario where wholesale Access for a non-integrated reseller is provided competitively by two vertically integrated firms. In a continuous-time economic laboratory experiment with both student and expert participants we compare market outcomes under different modes of wholesale competition as well as under an open Access Regulation preventing a margin squeeze. We find that wholesale competition can facilitate tacit collusion, which yields wholesale and retail prices even above the monopoly level. However, we show that a simple price commitment rule can substantially reduce tacit collusion. Moreover, we do not find evidence that margin squeeze Regulation benefits consumers.
David Flacher - One of the best experts on this subject based on the ideXlab platform.
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Access Regulation and geographic deployment of a new generation infrastructure
Telecommunications Policy, 2014Co-Authors: David Flacher, Hugues JennequinAbstract:This paper addresses the impact of regulatory policy on levels of infrastructure deployment and derived welfare in the telecommunications sector. The model considers two potentially coexisting and partially competing technologies (the "old generation network" - OGN - and the "new" generation network - NGN). This framework allows us to show that the "Regulation defining Access charge in order to maximize infrastructure deployment" is strictly equivalent to the case in which "no Regulation applies". We also derive from the model that these two types of Regulation induce higher social welfare, but lower numbers of NGN consumers, compared to the "ex post Access prices" Regulation. Finally, we show that the level of infrastructure deployment (as well as social welfare and number of NGN consumers) will be highest if both investment and Access charge decisions are taken by the welfare maximizing regulator. This suggests that the social optimum will be achieved through a calls-for-tender process that includes deployment and Access charge requirements. HighlightsWe address the impact of regulatory policy on infrastructure deployment.Our model includes two coexisting and partially competing techniques (OGN and NGN).Access Regulations maximizing infrastructure is studied as a possible relevant industrial policy.We show that direct Regulation of both investment and price could be the best regulatory remedy.
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Infrastructure investment and optimal Access Regulation in the different stages of telecommunications market liberalization
Telecommunications Policy, 2014Co-Authors: Romain Lestage, David FlacherAbstract:In this paper, we compare the optimal Access Regulation under three different market configurations that approximate the different stages of telecommunications market liberalization. We show that in the first stage of market liberalization the regulator has to balance between static efficiency and investment and that the optimal Access price may be above marginal cost. In the second stage, two different outcomes are possible. If entrants tend to underinvest, the regulator balances between static efficiency and investment. If entrants tend to overinvest, the regulator sets the Access price as low as possible in order to prevent or limit infrastructure duplication. Interestingly, we find that in the third stage of market liberalization the regulator may decide to promote infrastructure duplication and to set the Access price above the price in the first stage of market liberalization, even if telecommunications network operators tend to overinvest in infrastructure duplication.
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Access Regulation and geographic deployment of a new generation infrastructure
2012Co-Authors: David Flacher, Hugues JennequinAbstract:This article addresses the impact of regulatory policy on levels of infrastructure deployment and derived welfare in the telecommunications sector. The model considers two potentially coexisting and partially competing techniques (the old ADSL - Asymmetric Digital Subscriber Line - technique) - and the new FTTH - Fibre To The Home - one). Competition is supposed to be high on the ADSL market because of already existing Regulation. We assume that two types of operators are competing in order to provide FTTH services: those that build and operate the new infrastructures (OPf1) and those that just buy Access to them (OPf2). In our model, the level of investment is decided at stage 1 and the Access price is decided at stage 2. At stage 3, OPf1 and OPf2 compete a la Cournot. This common framework allows us to show that the Regulation defining Access price in order to maximise infrastructure deployment is strictly equivalent to the case in which no Regulation applies. We also derive from the model that these two types of Regulation induce higher social welfare, but lower numbers of FTTH consumers than cost-oriented Access Regulation. Finally, we show that the level of infrastructure deployment (as well as social welfare and number of FTTH consumers) will be at its highest if both investment and Access price decisions are taken by the regulator. This suggests that the social optimum will be achieved through a call-for-tender process including deployment and Access prices requirements.
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Access Regulation and infrastructure investment in the mobile telecommunications industry
Telecommunications Policy, 2011Co-Authors: Noel Gaston, Romain Lestage, David FlacherAbstract:While mobile virtual network operators (MVNOs) increase competition in the mobile telecommunications industry, granting market Access to MVNOs may have unwanted consequences. In particular, infrastructure investment by incumbent mobile network operators (MNOs) may be smaller. This paper examines the effects of MVNO entry and Access Regulation on the investment behavior of MNOs. It uses firm-level data for 58 MNOs in 21 OECD countries during 2000-2008. The results suggest that mandated provision of Access is related to lower investment intensity of MNOs, while voluntary Access provision has no effect. Although reduced investment incentives do not necessarily correspond to under-investment, this underscores the need for those countries where MVNOs are provided Access to address the issue of investment incentives.
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Access Regulation and Welfare
2011Co-Authors: Romain Lestage, David FlacherAbstract:Abstract 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.
Ichiro Yoshino - One of the best experts on this subject based on the ideXlab platform.
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Overusing a bypass under cost-based Access Regulation: underinvestment with spillovers
Journal of Regulatory Economics, 2015Co-Authors: Keizo Mizuno, Ichiro YoshinoAbstract:We explain how underinvestment in infrastructure upgrades is aggravated under Access Regulation with a cost-based Access charge. When a cost-based Access charge is imposed on an incumbent, the incumbent has a weak incentive to invest in infrastructure upgrades due to insufficient rewards for the investment. Then, the incumbent’s underinvestment induces the overuse of a bypass by an entrant that chooses productively efficient technology, when the degree of spillover is large, the production cost of the bypass is low, and the incumbent’s investment cost is high. The overuse of a bypass decreases the incumbent’s profits, which further reduces the incumbent’s incentive for investment. Thus, the overuse of a bypass generates a vicious cycle of underinvestment in infrastructure upgrades.
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Overusing a bypass under cost-based Access Regulation: underinvestment with spillovers
Journal of Regulatory Economics, 2014Co-Authors: Keizo Mizuno, Ichiro YoshinoAbstract:We explain how underinvestment in infrastructure upgrades is aggravated under Access Regulation with a cost-based Access charge. When a cost-based Access charge is imposed on an incumbent, the incumbent has a weak incentive to invest in infrastructure upgrades due to insufficient rewards for the investment. Then, the incumbent’s underinvestment induces the overuse of a bypass by an entrant that chooses productively efficient technology, when the degree of spillover is large, the production cost of the bypass is low, and the incumbent’s investment cost is high. The overuse of a bypass decreases the incumbent’s profits, which further reduces the incumbent’s incentive for investment. Thus, the overuse of a bypass generates a vicious cycle of underinvestment in infrastructure upgrades. Copyright Springer Science+Business Media New York 2015
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Distorted Access Regulation with strategic investments: Regulatory non-commitment and spillovers revisited
Information Economics and Policy, 2012Co-Authors: Keizo Mizuno, Ichiro YoshinoAbstract:We reexamine the properties of Access Regulation and an incumbent’s incentive for infrastructure investment under regulatory non-commitment and spillovers through Access. The results show that when the degree of spillover is small, the incumbent’s strategic opportunity to invest in infrastructure distorts the Access charge set by a regulator from a welfare perspective. In particular, when the degree of spillover is small and the incumbent’s investment cost is high (low), the incumbent has an incentive to utilize regulatory non-commitment to induce a high (low) Access charge by overinvesting (underinvesting) in infrastructure.
