Non-cost-raising discrimination: A rationale for functional separation in broadband open access

Andres Hervas-Drane ()
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Andres Hervas-Drane: IESE Business School, Postal: Research Division, Av Pearson 21, 08034 Barcelona, SPAIN

No D/942, IESE Research Papers from IESE Business School

Abstract: I present a vertical differentiation model to assess the quality-wise strategy of an incumbent telecommunications operator under open access regimes. I show that it is always profitable for an incumbent subject to wholesale regulation to degrade wholesale quality in a non-recoverable fashion. The findings are robust to the number of competitors and the price cap level, unlike those predicted by the cost-raising discrimination paradigm. I also show that functional separation, a structural remedy aimed at separating the incumbent's wholesale and retail operations, better aligns supply-side incentives with those of consumers. The analysis suggests that structural remedies exhibit good properties to implement open access regimes.

Keywords: Broadband Regulation; Open Access; Quality Service; Discrimination (search for similar items in EconPapers)
JEL-codes: D42 L12 L15 L22 L42 L96 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2011-11-11
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Persistent link: https://EconPapers.repec.org/RePEc:ebg:iesewp:d-0942

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