Network Investment and Competition with Access-to-Bypass
Keiichi Hori () and
No 138, Econometric Society 2004 Australasian Meetings from Econometric Society
This paper examines firms' incentive to make irreversible investments under an open access policy with stochastically growing demand. Using a simple model, we derive an access-to-bypass equilibrium. Analysis of the equilibrium confirms that the introduction of competition in network industries makes a firm's incentive to make investments greater than those of a monopolist. We then show that a change in access charges induces a trade-off in social welfare. That is, a decrease in the access charge expands a social benefit flow in the access duopoly, and deters not only the introduction of a new network facility, but also a positive network externality generated by the construction of an additional bypass network. The feasibility of the socially optimal investment timing is then discussed
Keywords: Open access policy; Investment; Real options; Network facility; Access charge (search for similar items in EconPapers)
JEL-codes: D92 L43 L51 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com and nep-reg
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Persistent link: https://EconPapers.repec.org/RePEc:ecm:ausm04:138
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