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Margin Squeeze in Fixed-Network Telephony Markets - competitive or anticompetitive?

Briglauer, Wolfgang and Götz, Georg and Schwarz, Anton (2010) Margin Squeeze in Fixed-Network Telephony Markets - competitive or anticompetitive? Working Papers / Research Institute for Regulatory Economics, 2010,2. Forschungsinstitut für Regulierungsökonomie, WU Vienna University of Economics and Business, Vienna.

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Abstract

This paper looks at the effects of different forms of wholesale and retail regulation on retail competition in fixed network telephony markets. We explicitly model two asymmetries between the incumbent operator and two entrants: (i) While the incumbent has zero marginal costs, the entrant has the wholesale access charge as (positive) marginal costs; (ii) While the incumbent is setting a two-part tariff at the retail level (fixed fee and calls price), the entrant can only set a linear price for calls. We model the product of the incumbent as horizontally differentiated from the products of the entrants who are homogenous and do not have any market power. Competition from other infrastructures such as mobile telephony or cable is modelled as an "outside opportunity" for consumers. We find that entrants without market power might be subject to a margin squeeze if the wholesale access price is set at average costs and competitive pressure from other infrastructures increases. Product differentiation, however, prevents market foreclosure. We argue that a wholesale price regulation at average costs is not optimal in such a situation and discuss retail-minus and deregulation as potential alternatives. (author's abstract)

Item Type: Paper
Additional Information: The views expressed are those of the authors entirely and do not represent those of RTR or Telekom-Control-Kommission (TKK). The usual caveat applies.
Keywords: access regulation / foreclosure / margin squeeze / telecommunications / fixed networks / Telekommunikationsmarkt / Festnetz / Regulierung / Marktabgrenzung / Marge
Classification Codes: RVK QR 720, QR 300 ; JEL L12, L41, L42, L50, L96
Divisions: Forschungsinstitute > Regulierungsökonomie
Depositing User: Dissertation Administrator
Date Deposited: 04 May 2011 10:34
Last Modified: 28 Aug 2012 18:18
URI: http://epub.wu.ac.at/id/eprint/3070

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