DP3836 Infrastructure Quality in Deregulated Industries: Is there an Underinvestment Problem?
|Author(s):||Men-Andri Benz, Stefan Bühler, Armin Schmutzler|
|Publication Date:||March 2003|
|Keyword(s):||investment incentives, networks, quality, vertical externality|
|JEL(s):||D42, L22, L43|
|Programme Areas:||Industrial Organization|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=3836|
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.