Working Paper: CEPR ID: DP3502
Authors: Kjell Erik Lommerud; Lars Sørgard
Abstract: The purpose of this article is to investigate the prospects for entry into an existing network in the telecommunication industry, and how public policy may promote a more competitive outcome. We apply a model that captures the fact that the incumbent has an installed base of loyal consumers, some consumers are price sensitive, and the entrant is charged an access fee for entering the network. We distinguish between classical (de novo) entry and reciprocal entry (incumbent entering the neighbouring market), and analyse how such public policy measures as (i) publication of prices by the authorities and (ii) lower access fees affect the competitive outcome. In the reciprocal entry model we find that lower access fees tend to discourage entry into a neighbouring market, while the publishing of prices has an ambiguous effect on entry.
Keywords: access fee; collusion; entry; telecommunication
JEL Codes: L13; L51; L96
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Lower access fees (D49) | Promote entry into the market (D40) |
| Lower access fees (D49) | Increase competitive rivalry (L13) |
| Reduction in access fees (D49) | Neither promote nor discourage entry (if incumbent is fully integrated) (L19) |
| Publication of prices (P22) | More intense rivalry on prices (D43) |
| Publication of prices (P22) | Deter entry (if it increases consumer price sensitivity) (D49) |
| Lower access fees (D49) | Lower prices benefiting consumers (D49) |
| Publication of prices (D49) | Ambiguous effect on entry (D84) |