Incentives to invest and to give access to non-regulated new technologies

Duarte Brito, Pedro Pereira and João Vareda ()

Information Economics and Policy, 2012, vol. 24, issue 3, 197-211

Abstract: We analyze the incentives of a vertically integrated firm, which is a regulated monopolist in the wholesale market and competes with an entrant in the retail market, to invest and to give access to a new wholesale technology. The new technology represents a non-drastic innovation that produces retail services of a higher quality than the old technology, and is left unregulated. We show that for intermediate values of the access price for the old technology, the vertically integrated firm may decide not to invest. When investment occurs, the vertically integrated firm may be induced to give access to the entrant for a low access price for the old technology. Furthermore, when both firms can invest, investment occurs under a larger set of circumstances, and it is the entrant the firm that invests in more cases. We also discuss the implications for the regulation of the old technology.

Keywords: New technology; Investment; Forbearance approach; Access regulation (search for similar items in EconPapers)
JEL-codes: L43 L51 L96 L98 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (24)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:iepoli:v:24:y:2012:i:3:p:197-211

DOI: 10.1016/j.infoecopol.2012.08.005

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