DP6203 The Race for Telecoms Infrastructure Investment with Bypass: Can Access Regulation Achieve the First-best?

Author(s): João Miguel Bastos Vareda, Steffen Hoernig
Publication Date: March 2007
Keyword(s): Access holidays, Investments, Preemption, Time-variant access charges
JEL(s): D92, L43, L51, L96
Programme Areas: Industrial Organization
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=6203

We analyze the impact of mandatory access on the infrastructure investments of two competing communications networks, and show that for low (high) access charges firms wait (preempt each other). Contrary to previous results, under preemption a higher access charge can delay first investment. Constant access tariffs cannot achieve the first best. Optimal time-variant access tariffs may be increasing or decreasing over time. The first-best cannot be achieved at all through access tariff regulation if the follower’s private incentives are dominated by business-stealing. Here access holidays can improve welfare by allowing for lower future access charges, which delay the second investment.