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Margin Squeeze in Fixed-Network Telephony Markets – competitive or anticompetitive?
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 the entrant: (i) While the incumbent has zero marginal costs, the entrant has the...
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| Published in: | MAGKS - Joint Discussion Paper Series in Economics (Band 27-2008) |
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| Main Authors: | , , |
| Format: | Work |
| Language: | English |
| Published: |
2008
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| Subjects: | |
| Online Access: | PDF Full Text |
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| Summary: | 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 the entrant: (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. Competition from other infrastructures such as mobile
telephony or cable is modelled as an ‘outside opportunity’ for consumers. We find that a
horizontally differentiated entrant with market power may be subject to a margin squeeze due
to double marginalization but will never be completely foreclosed. 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. 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. |
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| ISSN: | 1867-3678 |
| DOI: | 10.17192/es2023.0213 |