Network investment and the threat of regulation - preventing monopoly exploitation or infrastructure construction? / Ulrich Blum ; Christian Growitsch ; Niels Krap
Loading...
Download702 KB
Network investment and the threat of regulation - preventing monopoly exploitation or infrastructure construction?
Discovery
512891265
URN
urn:nbn:de:gbv:3:2-4127
DOI
ISBN
ISSN
Koordinaten
Skalierung
Author
dc.contributor.contributor
Other contributor
Publication history
Halle : Inst. für Wirtschaftsforschung, 2006
Content
Online-Ressource (Text, 702 KB)
Edition
Language
eng
Comment
Abstract
In summer 2005, the German telecommunication incumbent Deutsche Telekom announced its plans to build a new broadband fibre optics network. Deutsche Telekom decided as precondition for this new network not to be regulated with respect to pricing and third party access. To develop a regulator's strategy that allows investments and prevents monopolistic prices at the same time, we model an incumbent's decision problem under a threat of regulation in a game-theoretical context. The decision whether to invest or not depends on the probability of regulation and its assumed impact on investment returns. Depending on the incumbent's expectation on these parameters, he will decide if the investment is favourable, and which price to best set. This price is below a non-regulated profit maximising price, since the incumbent tries to circumvent regulation. Thus, we show that the mere threat of a regulator's intervention might prevent supernormal profits without actual price regulation. The regulator, on the other hand, an influence both investment decision and the incumbent's price via his signals on regulation probability and price. These signals can be considered optimal, if they simultaneously allow investment and minimize the incumbent's price.
Series
IWH-Diskussionspapiere ; 2006,7 ppn:37244492X