Competition and access price regulation in the broadband market

Michiel Bijlsma (), Viktoria Kocsis and Nelli Valmari

CPB Discussion Papers from CPB Netherlands Bureau for Economic Policy Analysis

Abstract: In most European broadband Internet markets local loop unbundling is mandated under a cost-based regulated access price. We construct a model for differentiated Cournot competition between service-based and infrastructure-based firms, out of which one infrastructure-based firm (the incumbent) supplies to the service-based firms. We seek for and compare the socially optimal and the incumbent’s profit maximizing access price in two scenarios: (i) service-based firms and incumbent supply homogeneous services (partial differentiation), and (ii) all services are horizontally differentiated (uniform differentiation). We show that in both cases the incumbent never forecloses service-based firms if infrastructure-based competition is present or if services are somewhat differentiated. Under uniform differentiation the welfare optimizing access price is below marginal cost, hence the incumbent subsidizes the production of service-based firms and makes zero profit. In the case of partial differentiation, the same result obtains when both markets are concentrated. However, if markets are not concentrated, the socially optimal access fee exceeds the marginal cost.

Keywords: broadband Internet market; imperfect competition; product differentiation; access regulation (search for similar items in EconPapers)
JEL-codes: L13 L51 L86 L96 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com, nep-cse, nep-ind, nep-mic, nep-net and nep-reg
Date: 2008-06
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Persistent link: http://EconPapers.repec.org/RePEc:cpb:discus:106

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