Should Uniform Pricing Contraints Be Imposed on Entrants?
34 Pages Posted: 27 Sep 2005
Date Written: May 2005
Abstract
This paper analyzes the effects of universal service obligations, such as uniform pricing, coverage constraints and price caps, on markets newly opened to competition, e.g., broadband services. We show that the requirement of uniform pricing has strong repercussions on coverage decisions. Imposed on the incumbent only, it may distort his coverage decision downward to avoid duopoly entry. If also imposed on entrants it increases the likelihood that entry leads to independent monopolies rather than competition. A large enough coverage constraint on the incumbent re-establishes incentives for duopoly entry, but may lead to higher prices.
Keywords: Universal service obligations, uniform pricing, coverage constraints, price caps, entry
JEL Classification: L43, L51, L52
Suggested Citation: Suggested Citation
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