Access prices indexed to geographical coverage of innovative telecom services

David Henriques

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: The literature on access prices and investment has suggested that firms under-invest when subject to an access provision obligation combined with a fixed access price per consumer. In this paper, I study an access price per consumer for an innovative service such as super- fast broadband provided by a regulated firm that is a function of its geographical coverage (indexation approach). The indexation approach can enhance economic efficiency beyond what is achieved with a fixed access price under a set of standard assumptions. In particular, it can simultaneously induce the firms to set lower retail prices, lead to wider geographi- cal coverage of innovative services and higher social welfare level compared with a fixed access price. Moreover, in the model, the indexation may be used to achieve approximately the Ramsey outcome, or the first-best coverage level. I address how a regulator can set the access price indexation optimally, based on the coverage cost plus an incentive. I highlight the potential role of indexation as a tool to reduce the need for public subsidies and the associated tax distortions when compared with a fixed access price.

Keywords: geographic coverage; innovation; investment incentives; price controls (search for similar items in EconPapers)
JEL-codes: L43 L51 L96 (search for similar items in EconPapers)
Pages: 16 pages
Date: 2020-08-27
New Economics Papers: this item is included in nep-ict and nep-reg
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Published in Journal of Industry, Competition and Trade, 27, August, 2020. ISSN: 1573-7012

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