Competition for Access: Spectrum Rights and Downstream Access in Wireless Telecommunications

Michiel J. Bijlsma () and Gijsbert T.J. Zwart ()

CPB Discussion Papers from CPB Netherlands Bureau for Economic Policy Analysis

Abstract: In the market for wireless telecommunications, radio spectrum is an essential input. We study downstream entry and capacity choice in this market, where licenses to use radio spectrum are owned by vertically integrated duopolists. Prior to network construction, these incumbents may offer contracts for capacity to an entrant, granting service-based access on the network they will construct. Alternatively, when spectrum trading is allowed, they may sell part of their license, allowing the entrant to build its own network and enter as an infrastructure player. We find that in this Cournot setting, access is generally provided, as incumbents compete to appropriate the profits of serving a differentiated market through the entrant. Although selling spectrum rights instead of network capacity leads to a loss of economies of scale in infrastructure construction, infrastructure-based entry may dominate as a result of a strategic effect. By delegating capacity choice to the entrant, the access providing incumbent can commit to compete more aggressively, causing its rival incumbent to reduce capacity. A lower aggregate capacity will increase prices and thereby profits.

Keywords: Telecommunications; Vertical Integration; Vertical Foreclosure; Strategic Delegation (search for similar items in EconPapers)
JEL-codes: L13 L42 L96 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com, nep-cse, nep-ind, nep-mic and nep-net
Date: 2009-03
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Persistent link: http://EconPapers.repec.org/RePEc:cpb:discus:123

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