Broadband Investment and the Threat of Regulation: Preventing Monopoly Exploitation or Infrastructure Construction?
Ulrich Blum (),
Christian Growitsch () and
Krap Niels ()
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Krap Niels: Halle Institute for Economic Research
Review of Network Economics, 2007, vol. 6, issue 3, 1-13
Recently, investments in new generation networks in Germany have been curtailed, since potential investors required this new network be unregulated. To develop a regulator's strategy that allows investments to occur but prevents monopolistic prices, we model an investor's decision problem under a threat of regulation. We show that the mere threat of a regulator's intervention may prevent supernormal profits without actual price regulation. The regulator, on the other hand, can influence both the investment decision and the investor's price via her signals on regulation probability and price.
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