One-way Access Pricing, Imperfect Competition And Network Investments

A facility-based firm invests in network quality and sells local access to her downstream subsidiary and an independent firm, which provide vertically differentiated value-added services. We show that access price regulation is welfare-enhancing, since it fosters competition while preserving investment incentives. This result is robust to four model specifications: i) the regulator credibly commits before the investment stage; ii) there exist consumer switching costs; iii) the rival firm considers (partial) backward integration; iv) theaccess owner is vertically separated. Thus, we reverse negative literature findings and dilute policy concerns about the effects of behavioural and structural regulation on long-run welfare.