Gradual Network Expansion and Universal Service Obligations
Universal service obligations are usually not competitively neutral as they modify the wayfirms compete in the market. In this paper, we consider a continuum of local markets in a dynamic setting with a stochastically growing demand. The incumbent must serve all markets (ubiquity) possibly at a uniform price and an entrant decides on its market coverage before firms compete in prices. Connecting a market involves a sunk cost. We show that the imposition of a uniform price constraint modifies the timing of entry: for low connection cost markets, entry occurs earlier while for high connection cost markets, entry occurs later.
Year of publication: |
2011
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Authors: | Gautier, Axel ; Mizuno, Keizo |
Institutions: | Centre de Recherche en Économie Publique et de la Population (CREPP), HEC École de Gestion |
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