Access regulation and the incumbent investment in quality-upgrades and in cost-reduction

João Vareda ()

Telecommunications Policy, 2010, vol. 34, issue 11, 697-710

Abstract: This papers studies if access price regulation has an impact on incumbents' incentives to invest in their network that might differ according to the nature of investments, that is, quality-upgrading and cost-reducing. It is shown that if the marginal cost of quality-upgrading is very low both types of investment are increasing in the access price. If the marginal cost of cost-reducing is very low, both investments decrease after an increase in the access price. Otherwise, a high access price increases the incentives for quality-upgrading and reduces the incentives for cost-reducing. Therefore, regulators should set a higher access price the lower is the marginal cost of quality-upgrading as compared to the marginal cost of cost-reducing.

Keywords: Telecommunications; Access; regulation; Quality-upgrading; Cost-reducing (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (18)

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