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|کد مقاله||سال انتشار||تعداد صفحات مقاله انگلیسی||ترجمه فارسی|
|18088||2014||11 صفحه PDF||سفارش دهید|
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Publisher : Elsevier - Science Direct (الزویر - ساینس دایرکت)
Journal : International Journal of Industrial Organization, Volume 30, Issue 6, November 2012, Pages 713–723
In this paper, we analyze the incentives of an incumbent and an entrant to migrate from an “old” technology to a “new” technology, and discuss how the terms of wholesale access affect this migration. We show that the coverage of the new technology varies non-monotonically with the access price of the old technology: a higher access charge on the legacy network pushes the entrant firm to invest more, but has an ambiguous effect on the incumbent's investments, due to two conflicting effects: the wholesale revenue effect, and the retail-level migration effect. When the new technology is also subject to access provision, we find that migration from the old to the new generation network at the wholesale level can be incentivized if a positive correlation between the access prices (to the two old and new generation networks) is maintained.
In network industries, and in particular telecommunications, the typical regulatory instrument used to limit market power and sustain competition at the retail level mandates access to existing (essential) infrastructures that are mainly operated and maintained by incumbent firms. While access regulation plays a fundamental role in promoting competition in the short-run, it can also have a significant impact on the incumbent firms' incentives to upgrade their infrastructure. Furthermore, terms of access to the legacy networks can impact both the incumbent and the entrant firms' incentives to invest in new alternative infrastructures,1 and hence, shape the transition from old technology infrastructures to new ones. The transition from “old” to “new” infrastructures often does not happen instantaneously. In the broadband telecoms industry, the evidence suggests a rather slow transition from the old generation (copper) to the new generation (fiber) networks (EC-DGInfo, 2011). The transition phase is then characterized by the coexistence of different generation infrastructures, where the investment incentives are shaped by the terms of access to the existing infrastructure, and possibly by those to the new infrastructure. The analysis of how the terms of access to the old technology affect investments in the new technology, as well as the interplay between the access terms to both networks, has been largely ignored in the recent literature, where the main focus has been on the impact of access regulation of either old or of new infrastructures on the investments by either the incumbent or the entrant firms. While the settings with this focus are most appropriate for the industries where the new technologies replace the old technology instantaneously, they are not suitable for addressing interesting research questions in industries where different generations of technologies coexist—at least during the transition phase. The main question we address in this paper is as follows: How do access requirements of an old generation network affect both the incumbent and the entrant firms' incentives to invest in the new generation network? We extend the same question to the context where access to the new generation network is also possible. In the stream of literature to which we aim to contribute, the majority of papers fall into either one of two groups.2 One set of papers consider only the entrant firm as a potential investor, and therefore, study the impact of access regulation (of the incumbent's network) only on the entrant's incentives to invest.3 Another set of papers considers both the entrant and the incumbent firms' incentives to invest, but nevertheless ignores the migration issue.4 This latter set of papers mainly explores the optimal access scheme in terms of the timing of investments in a setting where the investment decisions are “zero–one” in nature. Various recent studies, namely, Klumpp and Su (2010), Nitsche and Wiethaus (2011), and Brito et al. (2010), address the problem of investment and access regulation in a different vein, and yet, neglect the effect of migration from old to new infrastructures and how access regulation affects the decision to enter into one segment of the market. Brito et al. (forthcoming), which is the most similar paper to ours, focuses on the nature of innovation (which can be either drastic or non-drastic) and considers a new technology that is not subject to access. While overlooked in the theoretical literature, the migration issue has recently received considerable attention in the policy arena and is a hotly debated topic at the EU level.5 Existing proposals made by market specialists appear to be in sharp contrast to one another. For example, in a recent report prepared by WIK (2011) for the European Competitive Telecommunication Association (ECTA), WIK proposes to decrease the access price to legacy (copper) networks to encourage entrants to invest in new (fiber) networks, and to allow a rapid switch-off of the copper networks where the fiber is already installed. In contrast to WIK (2011), the report prepared by Plum (2011) for the European (incumbent) Telecommunications Network Operators (ETNO) states that a lower copper price would discourage investments to next-generation access networks because it would encourage customers to remain on copper networks, thereby negatively impacting the fiber business case. Moreover, Plum proposes to set a direct link between the regulated access price of the legacy network and the regulated access price of the new network. Both documents show that not only do the access prices of the high-tech infrastructure have an impact on the incentive to invest in the new network, but also the access price to the old (legacy) network has a major influence on the transition to the new networks. However, the direction of this link is still unclear and not theoretically based. In this paper we consider a setting where access to an existing old generation network (OGN) is available everywhere within a country, and an incumbent and an entrant compete for providing retail broadband services to consumers. In our setting, the country is composed of a continuum of areas, in which the fixed cost of rolling-out the new generation network (NGN) varies. In this setting we analyze both the incumbent and the entrant firms' incentives to invest in a new technology in different areas of the country, as a function of the access price of the existing network. Three conflicting effects emerge in this setting: when the access price for the existing infrastructure is low (i) the so-called replacement effect6 kicks in, and hinders infrastructure investment by alternative operators; (ii) the incumbent's opportunity cost of investment due to the wholesale revenue effect is also low (if the incumbent invests in a higher quality network, the entrant may invest in reaction, and the incumbent will then lose some wholesale profits); and finally (iii) the prices of the services which rely on the OGN are low. Therefore, in order to encourage customers to switch from the OGN to the NGN, operators should also offer low prices for the new infrastructure based services. This effect, which we refer to as the retail-level migration effect, reduces the profitability of the new technology infrastructure, and hence, the incentives to invest in it. We show that the coexistence of these multiple effects creates a non-monotonic relationship between the access price and investments in the NGN. Then, we extend our analysis to the case in which access to the NGN (whether owned by the incumbent or the entrant) is also available, possibly with different terms. We show that the provision of access to the NGN reduces the areas in which there is infrastructure competition (i.e., in which both firms invest in the NGN) when the incumbent dominates the NGN market. Furthermore, the access price of the OGN “caps” the access price to the NGN, and the migration from the OGN to the NGN at the wholesale level can be incentivized only if a positive correlation between the access prices (to the OGN and NGN) is maintained. The rest of the paper is organized as follows. In Section 2, we describe our benchmark model. We solve the model in Section 3 and provide an example in Section 4. We extend our analysis to consider spillovers and access to the NGN in Section 5. Finally, we conclude.
نتیجه گیری انگلیسی
The determination of the appropriate access prices (to an incumbent's legacy network) to achieve a socially desirable level of investments (in alternative networks) is central to the continuing policy debate around incentivizing NGN or alternative network investments. Numerous studies have acknowledged the tension between static and dynamic efficiency in setting the optimal access prices. While low access prices promote competition in the short-run, they may hinder firms' incentives to invest in alternative infrastructures. In a setting where both old generation and new generation networks can coexist, we consider both incumbent and entrant firms investing in NGN coverage. We find that the regulation of OGN access prices involves an additional tension, which cannot be resolved with the traditional access price regulation. In this paper, we find that the global NGN coverage, determined by the firm that has the largest NGN coverage, can vary non-monotonically with the access price of the OGN. This is also true for the socially desirable NGN coverage. We show that in an asymmetric equilibrium where the incumbent's investments determine the global coverage, the incumbent under-invests in the NGN, whereas the entrant over-invests in it. In such an equilibrium, while decreasing the access price of the OGN would help to eliminate socially wasteful duplication (by increasing the opportunity cost of the entrant's investment), it would also aggravate the under-investment problem of the incumbent. We find that in only one special case, where the equilibrium global NGN coverage is determined by the entrant's investment, and when this equilibrium involves over-investment by the entrant, the access price can be an effective regulatory tool. In this special case, the access price does not budge the incumbent's NGN investments, and a lower access price would not only promote competition in the short-run, but would also overcome the over-investment problem. We also consider spillovers in NGN investments, and show that when the degree of spillovers is sufficiently large, the equilibrium in which the entrant invests in higher NGN coverage than the incumbent is more likely to emerge. Furthermore, when the degree of spillovers is high, the access price can change the entrant's best-response function in a significant way, and turn it into a strategic complement to the incumbent's investment. Finally, there is an ongoing debate whether the NGNs should be subject to access regulation or not. We extend our setting to allow for the possibility that NGN operators should grant access to their infrastructures. We show that NGN access has a negative impact on NGN investments, especially on the coverage of the small network. We also find that when the incumbent dominates NGN coverage, the access price of new technology is “capped” by the OGN access price in order to incentivize the entrant's switch from the OGN to the NGN at the wholesale level. This result implies that, for policy, the access charges on both networks are linked and cannot be set independently. Our framework is suitable to be extended in different directions. First, it might be interesting to analyze the impact of demand and/or cost uncertainty in the incentives to migrate. We expect that if the demand uncertainty on the new technology is large, then the access conditions to the legacy and the new networks should take into account such an effect, leading to an increase in the wholesale prices. Second, in our setting each operator plays only once, whereas in reality this interaction is more dynamic. Migration per se is also a time-dependent process. Finally, access conditions to the new technology may differ across areas: in some areas the entrant might be interested in investing whatever the incumbent invests in, while in other areas the entrant might be more in favor of renting the incumbent's network. Regulatory rules for the access to the old technology network might therefore be different across areas. We leave all these potential extensions to future research.