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Network Investment and Competition with Access-to-Bypass

Keiichi Hori () and Keizo Mizuno

No 138, Econometric Society 2004 Australasian Meetings from Econometric Society

Abstract: 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)
Date: 2004-08-11
New Economics Papers: this item is included in nep-com and nep-reg
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