Network Competition and Entry Deterrence

Abstract

We develop a model of logit demand that extends to a multi-firm industry the traditional duopoly framework of network competition. Firstly, we show that incumbents establish inefficiently the reciprocal access charge below cost when they compete in prices, but they behave efficiently if they compete in utilities. Secondly, we study how incumbents determine the industry-wide access charge under the threat of entry. We show that incumbents may accommodate all possible entrants, only a group of them, or may completely deter entry. When entry deterrence is the preferred option, incumbents distort the access charge upwards. JEL Classification Numbers: L41; L51.

Network growth: Theory and evidence from the mobile telephone industry

“…Begin by assuming that termination fees, the price of calling, and the price of subscribing are determined as part of a three-stage process. 5 Throughout the model we allow for an arbitrary number of firms.…”

“…We assume firms are horizontally differentiated in the market for subscriptions and that consumers buy subscriptions from firms based upon a number of criteria, including the price of calling and their preferences for the unique features offered by a mobile firm. 6 5 We assume a calling party pays (CPP) regime (i.e., when a firm originates a call it must make a payment to the receiving firm in exchange for the termination service). It is relatively straightforward to extend the model to a receiving party pays (RPP) regime by allowing for negative termination rates in what follows.…”

Entrepreneurial Innovations in Network Industries

“…2 The existing literature on the pattern of commercialization for entry and sale (licensing), shows that commercialization by sale (licensing) is more likely when entry costs are high, the entrepreneurial firm lacks complementary assets, brokers facilitating trade are available, and the expropriation problem associated with asset transfers is low. 3 Abstracting from asymmetric information problems, we add to this literature by showing that when the innovation is commercialized in an oligopolistic market, it is more likely that the innovation is commercialized through a sale to an incumbent the stronger the network effects and the weaker compatibility between products is.…”

M2M Call Termination – Regulation or Competition?

“…The economic integration between networks is more of a worry for regulatory authorities. Typically, mobile telecom companies have mobile-to-mobile (M2M) call termination charges 3 that are higher than any reasonable cost estimate. 4 High termination charges lead networks to engage in termination-based price discrimination: they charge higher prices for o¤-net calls than for on-net calls; a practice that has received considerable attention from regulators.…”

“…In the next section we will brie ‡y discuss some central empirical features that we regard as important. Next, we review part of the recent literature on regulation 3 A termination charge or a termination fee is the amount a network charges to terminate a call that is originated outside its network. 4 A prominent example is the British mobile communcations market.…”