‘Strategic Bypass Deterrence’
January 15, 2014 Leave a comment
We’re into our second week of the CCP’s new Spring seminar series and on Friday 17th January we are delighted to welcome Francis Bloch, a Professor of Economics at Université Paris I. He will be presenting his joint-research with Axel Gautier (HEC University of Liege) on ‘Strategic Bypass Deterrence‘. An abstract for his seminar can be found below.
In liberalized network industries, entrants can either compete for service using the existing infrastructure (access) or deploy their own infrastructure capacity (bypass). In this paper, we demonstrate that, under the threat of bypass, the access price set by an unregulated and vertically integrated incumbent is compatible with productive efficiency. This means that the entrant bypasses the existing infrastructure only if it can produce the network input more efficiently. We show that the incumbent lowers the access price compared to the ex-post efficient level to strategically deter inefficient bypass by the entrant. Accordingly, from a productive efficiency point of view, there is no need to regulate access prices when the entrant has the option to bypass. Despite that, we show that restricting the possibilities of access might be profitable for consumers and welfare because competition is fiercer under bypass.
The seminar will takes place from 13:00-14:00 in the Thomas Paine Study Centre, Room 0.1.