A Simple Approach to Network Competition

Abstract

This paper develops a simple model of competition among interconnected networks. Access fees are determined either by a regulator or by competition. We show that the price is higher when they compete in both access prices and final tariffs non-cooperatively than when the access fees are regulated. We also show that incentives to collude are higher when access fees are regulated to the level of marginal cost of access services. Thus it is ambiguous to judge the net effect of competition on prices and relevant regulations are necessary to enhance welfare effects.