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Title: Network Competition and Entry Deterrence

Author(s): Joan Calzada and Tommaso Valletti

Publication Date: November 2005

Keyword(s): entry deterrence, interconnection and telecommunications

Programme Area(s): Industrial Organization

Abstract: We develop a model of logit demand that extends to a multi-firm industry the traditional duopoly framework of network competition with access charges. Firstly, we show that, when incumbents do not face the threat of entry and compete in prices, they inefficiently establish the reciprocal access charge below cost. This inefficiency disappears if incumbents compete in utilities instead of prices. Secondly, we study how incumbents change their choices under the threat of entry when they determine an industry-wide (non-discriminatory) access charge. We show how 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 upwards the access charges.

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Bibliographic Reference

Calzada, J and Valletti, T. 2005. 'Network Competition and Entry Deterrence'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=5381