Service Bundling and the Role of Access Charge in the Broadband Internet Service Market

Sunghee Shim and Jungsuk Oh

MPRA Paper from University Library of Munich, Germany

Abstract: Using the classical Hotelling model, this paper analyzes the incentive for a CATV service provider to bundle broadband internet services when entering the broadband internet services market. In addition, the effect of such service bundling by an entrant on the market incumbent with ownership over existing bottleneck facilities is analyzed. Furthermore, an access charge that maximizes social welfare is explored and determined. Two cases are considered: in the first case, the market is fully covered; and in the second case, the market is not fully covered. With full market coverage, an entrant has an incentive for service bundling if there is sufficient service differentiation. The entrant's bundling strategy reduces the incumbent's profit. In this case, the total social welfare is independent of the level of the access charge and only has an effect of redistributing the net surplus between consumers and the incumbent. With partial market coverage, the entrant has an incentive for service bundling at a low access charge. The incumbent's profit increases if the access charge is higher than the cost of access provisioning. In this case, the total social welfare is dependent on the level of access charge and the welfare maximizing access charge is less than the unit cost of providing access.

Keywords: cable TV; broadband internet service; bundling; access charge; convergence (search for similar items in EconPapers)
JEL-codes: D42 D45 K21 K23 L43 L82 L86 L96 (search for similar items in EconPapers)
Date: 2006-09
New Economics Papers: this item is included in nep-com, nep-ind, nep-mic and nep-net
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Published in International Journal of Digital Economics 63 (2006): pp. 73-91

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