Discussion Paper Details

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Title: Infrastructure Quality in Deregulated Industries: Is there an Underinvestment Problem?

Author(s): Men-Andri Benz, Stefan Bühler and Armin Schmutzler

Publication Date: March 2003

Keyword(s): investment incentives, networks, quality and vertical externality

Programme Area(s): Industrial Organization

Abstract: We investigate how various institutional settings affect a network provider?s incentives to invest in infrastructure quality. Under reasonable assumptions on demand, investment incentives turn out to be smaller under vertical separation than under vertical integration, though we also provide counter-examples. The introduction of downstream competition for the market can sometimes improve incentives. With suitable non-linear access prices investment incentives under separation become identical to those under integration.

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Bibliographic Reference

Benz, M, Bühler, S and Schmutzler, A. 2003. 'Infrastructure Quality in Deregulated Industries: Is there an Underinvestment Problem?'. London, Centre for Economic Policy Research.