Coexistence of Service- and Facility-Based Competition: The Relevance of Access Prices for "Make-or-Buy"-Decisions

Christian Bender and Georg Götz

No 201107, MAGKS Papers on Economics from Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung)

Abstract: This paper models competition between two firms, which provide broadband Internet access in regional markets with different population densities. The firms, an incumbent and an entrant, differ in two ways. First, consumers bear costs when switching to the entrant. Second, the entrant faces a make-or-buy decision in each region and can choose between service-based and facility-based entry. The usual trade-off between static and dynamic eficiency does not apply in the sense that higher access fees might yield both, lower retail prices and higher total coverage. This holds despite a strategic effect in the entrant's investment decision. While investment lowers marginal costs in regions with facility-based entry, it intensifies competition in all regions. We show that the cost-reducing potential of investments dominates the strategic effect: Higher access fees increase facility-based competition, decrease retail prices and increase total demand.

Keywords: Broadband access markets; facility- and service-based entry; investments; economies of density; switching costs (search for similar items in EconPapers)
JEL-codes: D43 L13 L51 L96 (search for similar items in EconPapers)
Pages: 50 pages
Date: 2011
New Economics Papers: this item is included in nep-com
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Forthcoming in

Downloads: (external link)
https://www.uni-marburg.de/en/fb02/research-groups ... s/07-2011_bender.pdf First version, 2011 (application/pdf)

Related works:
Working Paper: Coexistence of service- and facility-based competition: The relevance of access prices for "make-or-buy"-decisions (2015)
Working Paper: Coexistence of service- and facility-based competition: The relevance of access prices for "make-or-buy"-decisions (2010)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:mar:magkse:201107

Access Statistics for this paper

More papers in MAGKS Papers on Economics from Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung) Contact information at EDIRC.
Bibliographic data for series maintained by Bernd Hayo ().