Network Competition and Entry Deterrence

Tommaso Valletti and Joan Calzada

No 5381, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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.

Keywords: Telecommunications; Interconnection; Entry deterrence (search for similar items in EconPapers)
JEL-codes: L41 (search for similar items in EconPapers)
Date: 2005-11
New Economics Papers: this item is included in nep-com, nep-cse, nep-ind, nep-mic and nep-net
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Related works:
Journal Article: Network Competition and Entry Deterrence (2008)
Journal Article: Network Competition and Entry Deterrence (2008)
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