Strategic Bypass Deterrence

Francis Bloch and Axel Gautier ()

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Abstract: In liberalized network industries, entrants can either compete for service using the existing infrastructure (access) or deploy their own infrastructure capacity (bypass). In this paper, we demonstrate that, under the threat of bypass, the access price set by an unregulated and vertically integrated incumbent is compatible with productive effi ciency. This means that the entrant bypasses the existing infrastructure only if it can produces the network input more effi ciently. We show that the incumbent lowers the access price compared to the ex-post effi cient level to strategically deter ineffi cient bypass by the entrant. Accordingly, from a productive effi ciency point of view, there is no need to regulate access prices when the entrant has the option to bypass. Despite that, we show that restricting the possibilities of access might be profi table for consumers and welfare because competition is fi ercer under bypass.

Keywords: Make-or-buy; Access price; Bypass (search for similar items in EconPapers)
Date: 2012-11-07
New Economics Papers: this item is included in nep-com and nep-reg
Note: View the original document on HAL open archive server: https://hal.science/hal-00749318
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Strategic bypass deterrence (2017)
Working Paper: Strategic bypass deterrence (2017)
Working Paper: Strategic bypass deterrence (2012)
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