Gradual Network Expansion and Universal Service Obligations

Axel Gautier () and Keizo Mizuno

CREPP Working Papers from Centre de Recherche en Economie Publique et de la Population (CREPP) (Research Center on Public and Population Economics) HEC-Management School, University of Liège

Abstract: Universal service obligations are usually not competitively neutral as they modify the way firms compete in the market. In this paper, we consider a continuum of local markets in a dynamic setting with a stochastically growing demand. The incumbent must serve all markets (ubiquity) possibly at a uniform price and an entrant decides on its market coverage before firms compete in prices. Connecting a market involves a sunk cost. We show that the imposition of a uniform price constraint modifies the timing of entry: for low connection cost markets, entry occurs earlier while for high connection cost markets, entry occurs later.

Date: 2011
New Economics Papers: this item is included in nep-com and nep-mkt
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Journal Article: GRADUAL NETWORK EXPANSION AND UNIVERSAL SERVICE OBLIGATIONS (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:rpp:wpaper:1105

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