nep-com New Economics Papers
on Industrial Competition
Issue of 2011‒12‒13
forty-four papers chosen by
Russell Pittman
US Department of Justice

  1. Product Bundling and Incentives for Merger and Strategic Alliance By Sue Mialon
  2. Buyer Power and Intraband Coordination. By Miklos-Thal, Jeanine; Rey, Patrick; Vergé, Thibaud
  3. Preference for Variety By Karen Kaiser; Rainer Schwabe
  4. Informative Advertising, Consumer Search and Transparency Policy By Wang, Chengsi
  5. Remanufacturing By Sophie Bernard
  6. National advertising and cooperation in a manufacturer-two-retailers channel By Ben Youssef, Slim; Dridi, Dhouha
  7. The Welfare Effects of Third-Degree PriceDiscrimination in a Differentiated Oligopoly By Takanori Adachi; Noriaki Matsushima
  8. Price Discrimination in Many-to-Many Matching Markets By Renato Gomes; Alessandro Pavan
  9. Leadership in Multi-sided Markets By Federico Etro
  10. The monopoly benchmark on two-sided markets By Mueller, Christopher; Boehme, Enrico
  11. Experimentation in Two-Sided Markets By Peitz, Martin; Rady, Sven; Trepper, Piers
  12. Managerial incentives under competitive pressure: Experimental investigation By Ahmed Ennasri; Marc Willinger
  13. Patent Length, Investment and Social Welfare By James Bergin
  14. The Autonomy of sector-specific regulation – Is It still worth protecting? further thoughts on the parallel application of competition law and regulatory instruments By Stawicki, Aleksander
  15. The evolution from sector-specific regulation towards competition law in EU telecom markets from 1997 to 2011: Different effects in practical implementation By Freund, Natascha; Ruhle, Ernst-Olav
  16. The regulation of telecommunication in the United Kingdom of Great Britain & Northern Ireland By Sutherland, Ewan
  17. Must Take Cards: Merchant Discounts and Avoided Costs. By Rochet, Jean-Charles; Tirole, Jean
  18. The Relationship Between Banking Market Competition and Risk-taking: Do Size and Capitalization Matter? By Benjamin M. Tabak; Dimas M. Fazio; Daniel O. Cajueiro
  19. Is M&A different during a crisis? Evidence from the European banking sector By Beltratti, Andrea; Paladino, Giovanna
  20. Foreign banks' entry into the Russian market: motivation, entry modes and strategies By Victor Gorshkov
  21. An empirical analysis of the state of competition in OECD mobile wireless markets By Sung, Nakil; Kwon, Mi-ae
  22. Procompetitive infrastructure sector regulation and diffusion of innovation: The case of broadband networks By Gruber, Harald; Koutroumpis, Pantelis
  23. Internet access and investment incentives for broadband service providers By Baranes, Edmond; Poudou, Jean-Christophe
  24. Bottleneck co-ownership as a regulatory alternative By Federico Boffa; John Panzar
  25. Market driven network neutrality and the fallacies of internet traffic quality regulation By Knieps, Günter
  26. How to provide access to next generation networks? The effect of risk allocation on investment and cooperation incentives By Christian Bender
  27. Critical market shares for investors and access seekers and competitive models in fibre networks By Jay, Stephan; Neumann, Karl-Heinz; Plückebaum, Thomas
  28. Agame-theoretical approach to network capacity planning under competition By Waldman, Helio; Bortoletto, Rodrigo C.; Pavani, Gustavo S.
  29. Network sharing and co-investments in NGN as a way to fulfill the goal with the digital agenda By Mölleryd, Bengt G.
  30. Competition for Partners: Strategic Games in Wholesale International Roaming By Domínguez Lacasa, Javier
  31. Would you prefer a set menu or à la carte? An empirical study of multiple services and choices of consumer in the Swedish telecommunications market By Srinuan, Pratompong; Srinuan, Chalita; Bohlin, Erik
  32. A global analysis of third generation mobile telecommunications market entry By Madden, Gary; Morey, Aaron; Bohlin, Erik
  33. The relationship between local loop unbundling and the deployment of alternative broadband networks: An empirical analysis By Garrone, Paola; Zaccagnino, Michele
  34. A layered and nuanced assessment of network neutrality rationales By Frieden, Rob
  35. Competition, regulation and broadband access to the internet By Götz, Georg
  36. Legal gaps under deregulatory broadband policies and the resurgent rise of corporate power By Cherry, Barbara A.
  37. A typology of cooperation strategies in the telecommunication industry: An exploratory analysis and theoretical foundations By Limbach, Felix; Wulf, Jochen; Zarnekow, Rüdiger; Düser, Michael
  38. Open internet access to CATV networks: experiences from the EU By Valcke, Peggy; Hou, Liyang; Stevens, David
  39. High correlation between net promoter score and the development of consumers' willingness to pay (Empirical evidence from European mobile markets) By Jeanjean, François
  40. Does the net neutrality really preserve the open internet? A critique from the implications of broadband policy By Yeh, Chih-Liang
  41. Does Service Bundling Reduce Churn? By Jeffrey T. Prince; Shane Greenstein
  42. Role of access charges in the migration from copper to FTTH By Jeanjean, François; Liang, Julienne
  43. Assessment of sectoral innovation systems approach: The case of Turkish internet service market By Tözer, Ayhan; Göktaylar, Yavuz
  44. Decisions about entry modes for telecom companies into digital music business: An empirical case study By Wua, Pei-Ju; Fenga, Cheng-Min; Pana, Ya-Chuan

  1. By: Sue Mialon
    Abstract: This paper analyzes firms' choice between a merger and a strategic alliance in bundling their product with other complementary product. We consider a framework in which firms can improve profits only from product bundling. While mixed bundling is not profitable, pure bundling is because pure bundling reduces consumers' choices, and thus, softens competition among firms. Firms benefit the most from this reduced competition if they form an alliance. Firms do not gain as much from a merger because, internalizing the complementarity between the two products, a merged firm is inclined to pursue aggressive pricing to gain market share. Yet, firms may be motivated to choose a merger over an alliance because of foreclosure possibility as foreclosure is not possible under strategic alliance. However, in response, unmerged rivals can use a strategic alliance to avert foreclosure. Hence, the possibility of counter-bundling via strategic alliance by rivals reduces the incentives for merger. In equilibrium, bundling is offered only through strategic alliances.
    Date: 2011–07
  2. By: Miklos-Thal, Jeanine; Rey, Patrick; Vergé, Thibaud
    Date: 2011–08
  3. By: Karen Kaiser; Rainer Schwabe
    Abstract: We consider a decision maker who enjoys choosing from a varied set of alternatives. Building on behavioral evidence, we propose testable axioms which characterize preference for variety, and provide a representation theorem. We go on to illustrate the potential effects of preference for variety in a model of retailing. Consumer welfare may be decreasing in the competitiveness of the retailing sector as competition eliminates the scope for retailers to offer variety. Mainstream consumers with a preference for variety and consumers with eccentric tastes enjoy a symbiotic relationship. Competition over mainstream consumers makes retailers offer more exotic goods, while eccentric consumers subsidize their carrying costs.
    Keywords: Preferences, variety, representation theorem, retail, competition.
    JEL: D0 D03 D4
    Date: 2011–12
  4. By: Wang, Chengsi
    Abstract: Information about a new or non-frequently purchased product is often produced by both sides of the market. We construct a monopoly pricing model consisting of both seller's information disclosure and consumer's information acquisition. The presence of consumer search, which lowers the probability of making sales, creates incentive for the monopolist to deter search. In contrast with most previous literature, we show that, partial information disclosure arises in equilibrium when the search cost is low. As the search cost increases to medium level, the monopolist hides information but lowers the price to prevent consumers from searching. When the search cost is very high, the monopolist charges high price and hides all information. The equilibrium price is thus non-monotonic in search cost. Information disclosure and consumer search co-exist only when the search cost is low, and thus complement each other. We show that transparency policies on advertising cannot improve social welfare. Nevertheless, they benefit consumers in a wide range of values of the search costs by improving matching quality and reducing the expense of searching. But for some medium levels of search costs, transparency policies hurt consumers due to the induced high price in equilibrium.
    Keywords: Monopoly Pricing; Information Disclosure; Information Acquisition; Search Cost; Transparency Policy
    JEL: M37 D83 D42
    Date: 2011–10–03
  5. By: Sophie Bernard (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)
    Abstract: This paper presents a theoretical model of remanufacturing where a duopoly of original manufacturers produces a component of a final good. The specific component that needs to be replaced during the lifetime of the final good creates a secondary market where independent remanufacturers enter the competition. An environmental regulation imposing a minimum level of remanufacturability is also introduced. The main results establish that, while collusion of the firms on the level of remanufacturability increases both profit and consumer surplus, a social planner could use collusion as a substitute for an environmental regulation. However, if an environmental regulation is to be implemented, collusion should be repressed since competition supports the public intervention better. Under certain circumstances, the environmental regulation can increase both profit and consumer surplus. Part of this result supports the Porter Hypothesis, which stipulates that industries respecting environmental regulations can see their profits increase.
    Keywords: remanufacturing ; competition ; environmental regulation ; porter hypothesis
    Date: 2011
  6. By: Ben Youssef, Slim; Dridi, Dhouha
    Abstract: We consider a supply channel composed of one manufacturer and two retailers. Three cases are studied. The non-cooperative one is a leader-follower relationship. The manufacturer determines his spending in national advertising and the whole sale price. Then, the retailers determine non-cooperatively the price for consumers. The second case is a partial-cooperative one where retailers decide jointly for the price. In the third case, all members of the channel cooperate by maximizing a joint profit function. The spending in advertising and the quantity sold are the lowest in the partial-cooperative case, while retailers' price is the highest. Interestingly, when the degree of substituability between the two products proposed by retailers is low, these latter are worse off with partial-cooperation with respect to non-cooperation. Partial-cooperation is always the worst case for the manufacturer, the whole channel, consumers' surplus and social welfare, while cooperation is the best case. Cooperating members can share the extra-profit by a whole sale price.
    Keywords: Game theory; Manufacturer-two-retailers; National advertising; Cooperation
    JEL: C70 M30
    Date: 2011–11
  7. By: Takanori Adachi (School of Economics, Nagoya University); Noriaki Matsushima (Institute of Social and Economic Research, Osaka University)
    Abstract: This paper studies the welfare effects of third-degree price discrimination under oligopolistic competition with horizontal product differentiation. We derive a necessary and sufficient condition for price discrimination to improve social welfare: the degree of substitution must be sufficiently greater in the "strong" market (where the discriminatory price is higher than the uniform price) than in the "weak" market (where it is lower). It is verified, however, that consumer surplus is never improved; social welfare improves solely due to an increase in the firms' profits.
    Keywords: Third-degree price discrimination, Oligopoly, Social welfare, Horizontal product differentiation, Substitutability, Complementarity
    JEL: D43 L11 L13
    Date: 2011–12
  8. By: Renato Gomes; Alessandro Pavan
    Abstract: We study second-degree price discrimination in markets where the product traded by the monopolist is access to other agents. We derive necessary and sufficient conditions for the welfareand the profit-maximizing mechanisms to employ a single network or a menu of non-exclusive networks. We characterize the optimal matching schedules under a wide range of preferences, derive implications for prices, and deliver testable predictions relating the structure of the optimal pricing strategies to conditions on the distribution of match qualities. Our analysis sheds light on the distortions associated with the private provision of broadcasting, health insurance and job matching services. JEL Code: D82
    Keywords: matching, two-sided markets, networks, adverse selection, incentives, mechanism design
    Date: 2011–09
  9. By: Federico Etro (Department of Economics, University Of Venice Cà Foscari)
    Abstract: I analyze the role of leadership in multi-sided markets as online advertising. Search and display advertising are better characterized by (respectively) quantity and price competition. A platform that reached dominance in search may have an incentive to limit services to consumers to be aggressive with the advertisers, to exploit its scale in search to build barriers to entry, or to adopt click-weighted auctions to manipulate the pricing of sponsored links. On the other side, a dominant platform in display advertising may increase the rewards of content providers to increase prices on advertisers, or may adopt exclusive clauses to predate on other platforms.
    Keywords: Multisided markets, Leadership, Dominance
    JEL: L1
    Date: 2011
  10. By: Mueller, Christopher; Boehme, Enrico
    Abstract: The literature on the effects of market concentration in platform industries or two-sided markets often compares the competitive outcome against a benchmark. This benchmark is either the “joint management” solution in which one decision maker runs all platforms or a “pure” monopoly with just one platform. Literature has not generally discussed, which benchmark is the appropriate one. We show that the appropriate benchmark, i.e. how many platforms the monopolist will operate, depends on whether agents multi- or singlehome, whether the externalities are positive or negative, and in some cases on the properties of the demand functions. Different situations require different benchmarks. Our results also help to anticipate the effects of proposed platform mergers, where the assessment might crucially depend on the number of platforms after a merger.
    Keywords: two-sided markets; market concentration; monopoly
    JEL: K20 L51 L13 D42 D43 L12
    Date: 2011–11–01
  11. By: Peitz, Martin; Rady, Sven; Trepper, Piers
    Abstract: We study optimal experimentation by a monopolistic platform in a two-sided market framework. The platform provider faces uncertainty about the strength of the externality each side is exerting on the other. It maximizes the expected present value of its profit stream in a continuous-time infinite-horizon framework by setting participation fees or quantities on both sides. We show that a price-setting platform provider sets a fee lower than the myopically optimal level on at least one side of the market, and on both sides if the two externalities are of approximately equal strength. If the externality that one side exerts is sufficiently weaker than the externality it experiences, the optimal fee on this side exceeds the myopically optimal level. We obtain analogous results for expected prices when the platform provider chooses quantities. While the optimal policy does not admit closed-form representations in general, we identify special cases in which the undiscounted limit of the model can be solved in closed form.
    Keywords: Bayesian Learning; Monopoly Experimentation; Network Effects; Optimal Control; Two-Sided Market
    JEL: D42 D83 L12
    Date: 2011–11
  12. By: Ahmed Ennasri; Marc Willinger
    Abstract: We investigate the effects of competition on managerial incentives and effort in a laboratory experiment. Each owner offers compensation to his manager in two different contexts: monopoly and Cournot duopoly. After accepting the compensation, the manager chooses an effort level to increase the probability of reduced costs of his firm. Theory predicts that the entry of a rival firm in a monopolistic industry affects negatively both the incentive compensation and the effort level. Our experimental findings confirm that the entry of a rival firm reduces the incentive compensation but not the manager’s effort level. However, despite the reduction of the incentive compensation, the manager continues to accept the contract offers and exert the same level of effort.
    Keywords: Managerial Incentives, Effort, Competition, Moral hazard, Experiments
    Date: 2011–06
  13. By: James Bergin (Queen's University)
    Abstract: The intent of the patent system is to encourage innovation by granting the innovator exclusive rights to a discovery for a limited period of time: with monopoly power, the innovator can recover the costs of creating the innovation which otherwise might not have existed. And, over time, the resulting innovation makes everyone better off. This presumption of improved social welfare is considered here. The paper examines the impact of patents on welfare in an environment where there are large numbers of (small) innovators. With patents, because there is monopoly for a limited time the outcome is necessarily not socially optimal, although social welfare may be higher than in the no-patent state. Patent acquisition and ownership creates two opposing incentives at the same time: the incentive to acquire monopoly rights conferred by the patent spurs innovation, but subsequent ownership of those rights inhibits innovation (both own innovation and that of others). On balance, which effect will dominate? In the framework of this paper separate circumstances are identified under which patents are either beneficial or detrimental to innovation and welfare; and comparisons are drawn with the socially optimal level of investment in innovation.
    Keywords: Patents, Investment in R&D, Welfare
    JEL: D61 D64 O31 O34
    Date: 2011–10
  14. By: Stawicki, Aleksander
    Abstract: This article sets out to contribute to the on-going discussion regarding the relationship between competition law and sector-specific regulation, as well as the parallel application of competition law and regulatory instruments. Thus, this article attempts to provide a systematic outline of arguments which are conclusive for the proposition that sector-specific regulation must remain fully autonomous, while taking a critical stance with respect to the views of both the Supreme Court and academic lawyers who advocate the supremacy of competition law.
    Keywords: abuse of dominant position; sector-specific regulation
    JEL: K21
    Date: 2011
  15. By: Freund, Natascha; Ruhle, Ernst-Olav
    Abstract: The telecommunications markets in the European Union have gone through a period of rapid technological as well as economic change. After the market opening in the late 1990s, the approach to regulate these markets has likewise changed over time. Whereas a sectorspecific framework dominated the phase from 1998-2002, a more prominent role of competition law regulating telecommunications markets has become visible within the last years. The two reviews of the regulatory framework (2002 and 2010) have seen sector-specific measures being scaled back and competition law measures gaining a more prominent role. This paper tries to analyse the development from sector-specific regulation towards competition law in its application to telecommunications markets in the EU. It draws conclusions from the changes in the different reviews and demonstrates how these modifications of the framework have taken place. Additionally, the practical implementations are analysed with respect to two countries. Despite the fact, that EU member states are following a joint approach (EU framework), there are still differences on the national level as regards the application of regulatory instruments and the regulation of specific markets. This can be demonstrated by looking at how national regulatory authorities conduct the process of for example market definition, market analysis, SMP designation and levying of remedies. In the paper Germany and Austria are analysed, two neighbouring countries, with similar principles in the transposition of EU frameworks into national legislation, but with strongly different outcomes as regards specific regulatory measures in terms of e.g. market analysis, price regulation, organisation of the regulatory authorities etc. Thereby we demonstrate that although the EU framework tends to achieve harmonisation, there are still a number of differences between member states in practical implementation. The paper is organised as follows: after the introduction in section 1, section 2 draws the picture of the development of the most important elements of the EU regulatory framework over time. Thereby. we specifically look at the issues of market definition, analysis and dominance designation but also issues of access and interconnection are analyzed. This encompasses conclusions regarding the overall trends of development in the design of the EU regulatory framework. Section 3 analyses the corresponding developments in the Austrian and the German telecommunications act, especially with respect to the balance between the role of sector-specific regulation and competition law in national legislation. This is done be looking at some specific topics such as, market definition and analysis, organization of the regulatory authority, potential conflicts between regulatory authority and competition authority regarding competences and responsibilities, possibilities of enforcement, and the treatment of margin squeeze. Section 4 contains our conclusions with respect to the practical implementation in member states against the overall goal of harmonisation and demonstrates differences in the way EU legislation has been transposed to national legislation in a comparison between Germany and Austria. --
    Date: 2011
  16. By: Sutherland, Ewan
    Abstract: This paper reviews the application of national antitrust law and the implementation of the European Union's telecommunications directives to the markets in the United Kingdom, against the declared policy objective of raising national competitiveness. It illustrates the complexity of the systems that have been created over three decades, with complex and interlocking regulatory, self-regulatory, judicial and appellate bodies, interacting with the parliamentary systems to form a regulatory state. Where markets have failed, or thought likely to fail, the state at different levels (UK, national and municipal) has supported studies and subsidized the provision of broadband Internet access. The regulator, using its sectoral antitrust powers, agreed with British Telecom to functional separation, transferring the enduring bottleneck of local access to a separate subsidiary. While the UK describes itself as a regulatory leader this is difficult to evaluate, given the number and the frequencies of changes, nonetheless the claim seems very difficult to substantiate. --
    Keywords: Governance,Competitiveness,Regulatory state,Great Britain,United Kingdom
    Date: 2011
  17. By: Rochet, Jean-Charles; Tirole, Jean
    Date: 2011–06
  18. By: Benjamin M. Tabak; Dimas M. Fazio; Daniel O. Cajueiro
    Abstract: This paper aims to study the effect of banking competition on Latin American banks' risk-taking and whether capitalization and size changes this relationship. We conclude that: (1) competition affects risk in a non-linear manner: high/low (average) competition are related to more (less) stability; (2) bank's size explains the advantage from competition, while capitalization is only positive for larger banks in this case; (3) capital ratio explains the advantage from lower competition. These results are of uttermost importance for bank regulation, especially due to the recent turmoil in worldwide financial markets.
    Date: 2011–11
  19. By: Beltratti, Andrea; Paladino, Giovanna
    Abstract: The financial crisis has affected the landscape of the banking sector around the world. We use a sample of transactions taking place in Europe in 2007-2010 to study the acquirer’s stock price market reaction to announcements and completions of acquisitions. We find that there are no significant abnormal returns around the announcement of an acquisition while there are positive abnormal returns at completions. We study the cross-sectional determinants of abnormal returns and find that announcement returns are mainly explained by the acquirer bank characteristics, while completion returns depend on opacity of the target and in large part on the drop in volatility associated with a reduction of uncertainty.
    Keywords: Mergers and Acquisitions; Banks; Opacity; Financial crisis
    JEL: G34 G21
    Date: 2011–11–25
  20. By: Victor Gorshkov (PhD student, Graduate School of Economics, Kyoto University)
    Abstract: The present paper analyses motivation, entry modes and strategies of foreign banks entering into the Russian market. The share of foreign assets in the banking sector is gradually increasing, proving the fact that more and more foreign banks show their interest in the Russian banking sector. What lies behind this growth? The article shows that motivation for entry is similar to some other developing and transition economies (both PUSH and PULL reasons exist) and presents some peculiar features concerning the modes of entry and strategies. It is shown that recently organic strategy growth is gradually replaced by M&A.
    Keywords: foreign banks, motivation, entry modes, strategies, M&A
    Date: 2011–12
  21. By: Sung, Nakil; Kwon, Mi-ae
    Abstract: Contra the current trend of deregulation, mobile wireless markets in the OECD member states appear, until recently, to have been more or less concentrated. The study estimates the equations for market concentration, mobile prices, and profits using annual panel data from 24 OECD member states for the 1998-2009 period, in order to assess their interaction. Mobile prices, measured by revenue per minute in constant USD PPP, are regarded as a direct measure of consumer welfare. Estimation results indicate that in the second half of the 2000s, market concentration had no effect on mobile prices, whereas the positive relationship between market concentration and profits persisted. In other words, the market-power hypothesis is rejected in the second half of the 2000s. This empirical result provides a strong case for a recent lenient approach towards regulation and merger attempts in OECD mobile wireless markets. Additionally, the study provides evidence that regulatory policies have affected mobile market structure and performance. --
    Keywords: Mobile wireless markets,market structure,market performance,regulatory policy,competition
    JEL: L11 L96
    Date: 2011
  22. By: Gruber, Harald; Koutroumpis, Pantelis
    Abstract: The paper assesses the scope for competition inducing infrastructure regulation in furthering the diffusion of innovation. The paper uses data on the adoption of broadband services comprising a global panel of 167 countries. The effects of different regulatory provisions are assessed. The result of this paper allows qualifying different elements of the regulatory debate on the consequences of access requirements, including mandatory unbundling. First, it suggests that interplatform competition is generally not leading to acceleration in broadband diffusion. Second, with respect to intra-platform competition, this has been analyzed at two different levels: full unbundling and retail competition. In the first case the competitor is investing in network infrastructure to be able to induce some degree of service differentiation. With retail competition the scope for service differentiation is much more limited and hence competition is most likely centered on price. While both lead to faster diffusion, the results consistently show that the effect from retail competition is proportionally about twice as strong compared to unbundling. Moreover, the analysis of the time profile of the effects show that this impact on diffusion first increases until the third or fourth year after introduction, but then dissipates away. Also here one can argue that retail differentiation leads to more intense price competition and therefore faster diffusion. Different robustness checks for the results are provided. --
    Keywords: Broadband,regulation,innovation,service competition,platform competition,local loop unbundling
    JEL: L96 L51 O33
    Date: 2011
  23. By: Baranes, Edmond; Poudou, Jean-Christophe
    Abstract: This paper studies a model of the Internet broadband market as a platform in order to show how different pricing schemes from the so-called net neutrality may increased economic efficiency by allowing more investment of access providers and enhancing consumers surplus and social welfare. --
    Keywords: Network neutrality,Flat rates,Termination fees
    JEL: L51 L86 L96
    Date: 2011
  24. By: Federico Boffa (University of Macerata); John Panzar (University of Auckland)
    Abstract: This paper proposes a regulatory mechanism for vertically related industries in which the upstream “bottleneck” segment faces significant returns to scale while other (downstream) segments may be more competitive. In the proposed mechanism, the ownership of the upstream firm is allocated to downstream firms in proportion to their shares of input purchases. This mechanism, while preserving downstream competition, partially internalizes the benefits of exploiting economies of scale resulting from an increase in downstream output. We show that this mechanism is more efficient than a disintegrated market structure in which the upstream natural monopoly bottleneck sets a price equal to average cost.
    Keywords: Regulation, vertically related industries, co-ownership
    JEL: L22 L51
    Date: 2011
  25. By: Knieps, Günter
    Abstract: In the U.S. paying for priority arrangements between Internet access service providers and Internet application providers to favor some traffic over other traffic is considered unreasonable discrimination. In Europe the focus is on minimum traffic quality requirements. It can be shown that neither market power nor universal service arguments can justify traffic quality regulation. In particular, heterogeneous demand for traffic quality for delay sensitive versus delay insensitive applications requires traffic quality differentiation, priority pricing and evolutionary development of minimal traffic qualities. --
    Date: 2011
  26. By: Christian Bender (University of Giessen)
    Abstract: This paper analyzes the incentives to invest in Next Generation Access Networks (NGA) in a framework with horizontal product differentiation with price competition between an investing and an access seeking firm. Given uncertainty about the success of the NGA, I compare regulatory regimes with symmetric and with asymmetric risk allocation to the firms having the opportunity to cooperate and jointly roll-out the NGA. I find that private incentives to cooperate might coincide with the consumer surplus maximizing outcome. Whether the firms realize this socially desirable outcome depends on the outside option, i.e. the implemented access regime. The optimal regulatory policy is not only subject to the probability that the NGA succeed but depends even more on the degree of product differentiation in the retail market. Therefore, the implementation of different access regimes subject to the degree of product differentiation seems favorable. For heterogeneous retail products, an asymmetric risk allocation not only increases the chances of cooperation but lowers the risk of overinvestment. For homogeneous goods, a symmetric risk allocation is superior as it ensures sufficient investment incentives even if competition is very intensive.
    Keywords: Next Generation Access Networks, investment, access regulation, cooperation
    JEL: D43 K23 L13 L51 L96
    Date: 2011
  27. By: Jay, Stephan; Neumann, Karl-Heinz; Plückebaum, Thomas
    Abstract: In this paper we consider and evaluate NGA architectures which meet the foreseeable future bandwidth demand and allow for highest bandwidth and quality for end-users and which no longer rely on copper cable elements. These are FTTH architectures only. From all available FTTH architectures we concentrate on the two most relevant architectures in Europe, Ethernet Point-to-Point and GPON. We assume the incumbent to be the investor in the NGA network infrastructure. If the NGA architecture is based on a Point-to-Point fibre plant we have modelled the competitors as using unbundled fibre loops as the wholesale access service. If the architecture is based on a Point-to-Multipoint fibre plant, we consider an active wholesale access (bitstream access) at the MPoP or at the core network node locations. Our basic modelling relies upon an engineering bottom-up cost modelling approach. We model the total cost of the services considered under efficient conditions, taking into account the cost of all network elements needed to produce these services in the specific architecture deployed. This approach is coherent with a Long Run Incremental Cost approach as applied in regulatory economics. Our modelling approach generates a broad set of results including the relative performance of the various network architectures, investment requirements and the degree of profitable coverage. In this paper, however, we focus on the results on the potential for competition and potential market structures in an NGA environment. --
    Keywords: NGA architecture,cost modelling,FTTH,coverage,access models,unbundling
    JEL: L10 L13 L14
    Date: 2011
  28. By: Waldman, Helio; Bortoletto, Rodrigo C.; Pavani, Gustavo S.
    Abstract: The paper discusses the dimensioning strategies of two network providers (operators) that supply channels to the same population of users in a competitive environment. Usersare assumed to compete for best service (lowest blocking probability of new request), while operators wishto maximize their profits. This setting gives rise to two interconnected, noncooperative games: a) a users game, in which the partition of primary traffic between operators is determined by the operators' channel capacities and by the users' blocking-avoidance strategy; and b) a network dimensioning game between operators in which the players alternate dimensioning decisions thatmaximize their profit rate under the current channel capacity of his/her opponent. At least for two plausible users' blocking avoidance strategies discussed in the paper, the users game will always reach some algorithmic equilibrium. In the operators' game, the player strategies are given by their numbers of deployed chanels, limited by their available infrastructure resources. If the infrastrucutre is under-dimensioned with respect to the traffic rate, the operators game willreach a Nash equilibrium when both players reach full use of their available infrastructures. Otherweise, a Nash equilibrium may also arise if both operators incur the same deployment costs. If costs are asymmetric, though, the alternating game may enter a loop. If the asymmetry is modest, both players may then try to achieve a competitive monopoly in which the opponent is forced to leave the game or operate with a loss (negative profit). However, if the asymmetry is high enough, only the player with the lower costs can force his opponent to leave the game while still holding a profitable operation. --
    Keywords: network dimensioning,game theory,duopoly,Nash equilibrium,circuit switching,blocking probability
    JEL: C72
    Date: 2011
  29. By: Mölleryd, Bengt G.
    Abstract: The European Commission and most European countries have set ambitious broadband targets aiming to provide up to 100 Mbits to the end-customers. On back of a declining fixed market, negative growth for operators and a slow take up of fiber while maintaining high capex levels operators will ultimately be forced to take innovative approaches towards broadband investments. This paper relates co-investments in NGA to the regulatory framework in the form of SMP regulation and competition law making the conclusion that the current regulatory framework is sufficient to avoid a distorted competition on the market. A number of examples of ongoing co-investment projects are presented underscoring a growing interest for co-investments and indicating that co-investments, at this point, are not hampering competition. The mobile industry has gradually moved towards network sharing indicating a tendency towards vertical disintegration, although so far only a tendency. The ongoing structural separation of Telecom New Zealand with the establishment of a separate network and wholesale company is an indication of this development. The paper concludes by stating that regulators have appropriate tools to handle potential competition issues regarding coinvestments, that co-investments could be a vehicle for reaching the broadband targets, that there are efficiency gains for operators to make by lower Opex and capex, and ultimately giving network companies the means to utilize their balance sheet in order to increase the return. --
    Keywords: NGA,co-investment,SMP regulation,horizontal and vertical agreements,capex,network sharing,financial gearing
    Date: 2011
  30. By: Domínguez Lacasa, Javier
    Abstract: High international roaming prices have puzzled and occupied analysts and regulators for quite a time. While on the retail side the problem seems to be well understood, and the high margins can be justified using Ramsey pricing logic, on the wholesale side the picture is not so clear. Recent contributions find reasons for regulation based on the existence of random traffic and on the bilateral nature of the wholesale deals, which raise the equilibrium prices even when operators can choose a preferred network. This paper intends to investigate whether or not those concerns are justified. This is done by modelling the bilateral roaming negotiations and extending the current models, assuming that home operators (the ones with a retail contract with the customer in its country of residence) can decide not only their preferred network in each visited country, but also the distribution of their outbound traffic among the visited operators. We find that when traffic steering is perfect the wholesale market is competitive, and that the lower prices are passed on to end users through competition for retail customers. The bilateral nature of international roaming wholesale deals is actually an additional source of competition on the retail market for mobile services because the roaming out traffic (the traffic of an operator's retail customers abroad) and the roaming in traffic (the traffic of foreign customers that an operator is able to attract) are directly linked. --
    Date: 2011
  31. By: Srinuan, Pratompong; Srinuan, Chalita; Bohlin, Erik
    Abstract: Received analyses state that firms can use a bundling strategy to retain customers and capture new customers. Factors that determine the bundling strategy include product discount, service provider and customer characteristics. Consequently, this study addresses the fundamental question: What are the key determining factors that explain the probability that a consumer will buy multiple services? A Poisson regression model is employed to examine whether the product discount, service provider, socio-economic variables and geographical location impact on consumer decisions. Data from a national survey in 2009 commissioned by Post-och Telestyrelsen, the Swedish telecommunications regulator, are analysed. The results clearly show that the discount, service provider and income of the consumer affect the consumer's buying decision. For example, a consumer who receives a discount or has a high income is more likely to buy a bundle service (set menu) or select more services from the current service provider into his basket than a consumer who buys an individual service (à la carte). Service providers, cable TV operators and telecommunications carriers can also lock-in their consumer and expand their market position from one particular service to another using bundle services. Thus, this may be the time for the telecommunications regulator to consider the market definition. --
    Date: 2011
  32. By: Madden, Gary; Morey, Aaron; Bohlin, Erik
    Abstract: National regulatory authorities (NRAs) attempt to encourage participation in spectrum assignments by enhancing entrants' likelihood of success. The question this study addresses is: Can NRA policy tools really affect the probability an entrant wins a 3G spectrum licence? In particular, the econometric analysis allows consideration of whether licence concession or mode of assignment encourages entry. The study finds that auction assignment processes only slightly increase the probability of entry, whilst price and quantity concessions have no impact. --
    Keywords: Market entry,global mobile telephone markets,3G spectrum assignment
    JEL: D82 L51 L96
    Date: 2011
  33. By: Garrone, Paola; Zaccagnino, Michele
    Abstract: This paper means to add to empirical research on the impact of local loop unbundling (LLU) on broadband networks. In particular, it focuses on broadband investment made by entrants. Starting from late Nineties telecommunications incumbents of several European Union countries have been required to unbundle their local loops. While there is a general consensus on the negative or null impact of unbundling obligations on incumbents' investment, research on the relationship between LLU and new entrants' investment, albeit growing, has not yet reached a coherent body of results. We have tested two propositions. First, service-based entry, which relies on LLU, paves the way to new entrants' subsequent investment in broadband systems (i.e. ladder of investment theory). Second, the price charged for local loop should increase over time in order to have a significant investment in alternative platforms (i.e. the transitory entry assistance theory). The empirical analysis is carried out on a sample of 27 European countries (2002-2009 period). We have collected country-level data on broadband lines and LLU policy indicators. The preliminary results suggest that service-based entry does not lead entrants to a subsequent facility-based entry, casting some doubts on the ladder of investment theory. The short ladder version of the theory has received confirmation instead. At the same time, an increasing price of local loop is not found to stimulate the entrants' investment in alternative broadband networks. --
    Keywords: investment,competition,access regulation,broadband networks,unbundling local loop
    JEL: L50 L51 L96
    Date: 2011
  34. By: Frieden, Rob
    Abstract: --
    Date: 2011
  35. By: Götz, Georg
    Abstract: This paper re-examines the effect of the regulatory regime on both penetration and coverage of broadband access to the internet. The framework also allows for an evaluation of different public policy measures such as subsidization of broadband demand and supply. A welfare analysis asks what the optimal regulatory regime is and whether and how high-speed access to the internet should be subsidized. Using an approach similar to Valletti et al. (2002), the paper highlights the importance of population density for whether firms invest to provide internet access. The analysis reveals a trade-off between coverage and penetration. --
    Keywords: broadband internet,penetration,coverage,subsidies
    JEL: L51 L96
    Date: 2011
  36. By: Cherry, Barbara A.
    Abstract: This paper considers the likely combinatorial effects of U.S. deregulatory broadband policies and the evolution of law as applied to corporations as a general matter. It explains how legal developments in both areas have dismantled bodies of law or doctrines that had developed to address corporate power in both commercial and political spheres and to protect consumers from vulnerability in commercial activities. Moreover, the coexistence of these developments enables an unprecedented transfer of corporate power between economic and policymaking institutions. With the decline in regulatory constraints, as well as the rise in constitutional rights to block attempts to impose regulatory constraints, there is a resurgent rise of corporate power. The result may be a phase transition undermining the rule of law so critical to sustainable democracies. --
    Keywords: Antitrust,broadband,common carriers,constitutional rights,consumer protection,corporations,telecommunications
    JEL: K23
    Date: 2011
  37. By: Limbach, Felix; Wulf, Jochen; Zarnekow, Rüdiger; Düser, Michael
    Abstract: The value chain of the telecommunication industry is subject to a continuing disintegration which is caused by outsourced network operation, the provisioning of wholesale interfaces to competing service providers and the cooperative provisioning of broadband access. Thus, many companies regard cooperation as an element of cooperate strategy. In this paper we propose a cooperation topology for the telecommunication industry and identify drivers of cooperation based on the assessment of case studies. The results indicate that drivers of cooperation differ with respect to the cooperation direction and that the combination of complementary resources is the dominating driver of cooperation. --
    Keywords: Cooperation,telecommunication,typology of cooperation strategies,transaction costs
    JEL: B40 A10 D80 O33
    Date: 2011
  38. By: Valcke, Peggy; Hou, Liyang; Stevens, David
    Abstract: Broadband over CATV networks is flourishing in the EU and in some Member States it even has already made significant impact on the retail broadband market. Our article aims to provide an overview of the regulatory treatment of broadband over CATV under the electronic communications regulatory framework. For this purpose, we carry out a survey of the different approaches within the 27 EU Member States. Based on the comments of the European Commission within the EU consultation procedure, our observation is that open Internet access obligations upon CATV operators remains limited. --
    Keywords: access regulation,CATV,broadband
    Date: 2011
  39. By: Jeanjean, François
    Abstract: This paper shows that the correlation between the Net Promoter Score and consumers' Willingness To Pay in five European mobile markets is very strong. The Net Promoter Score is provided by a survey and the Willingness To Pay is calculated using the Spokes Model which is an economic model based on horizontal differentiation among firms. The model input data (firms' revenues, number of subscribers and profits) are provided by Merill Lynch, Bank of America. The well-known correlation between Net Promoter Score and Revenues is weaker and arises from the previous correlation. The same is true of the correlation between Net Promoter Score and Profits. --
    Keywords: Net Promoter Score,recommend intention,customer satisfaction,consumer's Willingness to Pay
    JEL: D11 D43 L13 L96 M31
    Date: 2011
  40. By: Yeh, Chih-Liang
    Abstract: --
    Date: 2011
  41. By: Jeffrey T. Prince (Department of Business Economics and Public Policy, Indiana University Kelley School of Business); Shane Greenstein (Department of Management and Strategy, Kellogg School of Management, Northwestern University)
    Abstract: We examine whether bundling in telecommunications services reduces churn using a series of large, independent cross sections of household decisions. To identify the effect of bundling, we construct a pseudo-panel dataset and utilize a linear, dynamic panel-data model, supplemented by nearest-neighbor matching. We find bundling does reduce churn for all three "triple-play" services. However, the effect is only "visible" during times of turbulent demand. We also find evidence that broadband was substituting for pay television in 2009. This analysis highlights that bundling helps with customer retention in service industries, and may play an important role in preserving contracting markets.
    Keywords: Bundle, Service, Churn, Triple Play, Telecommunications, Cable, Broadband, Telephone, Screen
    JEL: L0 D12 L96
    Date: 2011–11
  42. By: Jeanjean, François; Liang, Julienne
    Abstract: We consider a horizontally and vertically differentiated duopoly model in order to analyze both intra- and inter-platform competition in an always corvered broadband access market (Copper-Copper, Copper-FTTH and FTTH-FTTH competitions). The model is purely static and does not address dynamic efficiency issues. It shows that the access charges play a significant role in the migration from copper to FTTH and in FTTH investment incentives, provided that consumers are segmented. In FTTH-infrastructure-based competition, investment incentives tend to increase with the copper access charge, while in FTTH-servicebased competition, FTTH investment incentives are much more sensitive to the FTTH access charge than to the copper access charge. A comparison of FTTH-infrastructure-based and FTTH-service-based competition in terms of nationwide FTTH coverage and social welfare indicates that FTTH-infrastructure-based competition leads to a higher level of nationwide FTTH coverage and social welfare. --
    Date: 2011
  43. By: Tözer, Ayhan; Göktaylar, Yavuz
    Abstract: The aim of this paper is to evaluate sectoral innovation system of Turkish internet service market by looking into some case studies and making interviews with related actors. In this attempt, firstly, a sectoral innovation systems approach has been described briefly from theoretical point of view. Then, third section introduces sectoral innovation systems of internet services. At fourth section, two case studies are mentioned. At the following chapter, we focus on regulatory developments that affect market and sectoral innovation systems regarding broadband internet access in Turkey. Fourthly, we describe the results of interviews done with executive officers of several large Internet Service Providers and a general secretary of a sector association in this country. Finally, we discuss the policy implications for Turkish policy makers in order to improve the functioning of sectoral innovation systems of internet services. At the conclusion section, we summarize the main findings and policy suggestions. --
    Keywords: competition,innovation,internet service market,sectoral innovation system,telecommunications,regulation.
    JEL: L51 L96
    Date: 2011
  44. By: Wua, Pei-Ju; Fenga, Cheng-Min; Pana, Ya-Chuan
    Abstract: The digital music market offers an opportunity for telecom companies to furnish value-added services. However, little effort has been made to study empirically how to make a decision about entry modes for telecom companies into digital music business. This study therefore investigates various strategies that telecom companies may implement to enter the digital music industry. The results of a series of expert surveys reveal that the preference ranking of entry modes is acquisition, joint venture, and contractual agreement, respectively. Moreover, the leading key factors in selecting entry modes are complementary capabilities, hostility of environment, relational risk between firms as partners, commitment of resources, and availability of expertise. Furthermore, an importance-performance analysis was conducted to understand the different aspects that are of different performances and importance in each entry mode. The implications of the findings are also discussed. --
    Keywords: Telecom companies,Digital music business,Entry modes,Value added
    Date: 2011

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