Incumbents Choose Low Interconnection Quality ? by Øystein Foros
نویسندگان
چکیده
We analyze the interconnection incentives for two networks that differ with respect to the size of their installed bases. In the first part we prove that the smaller firm may be harmed in competition for new customers if the installed base customers pay a high price. In the second part we assume that the interconnection quality to customers in the installed bases is set before the interconnection quality to new customers. We show that both firms prefer perfect interconnection quality to new customers if the installed base interconnection quality is sufficiently high, and we discuss what policy implications this may have. 1We are indebted to two anonymous referees, editor Martin Cave, Pinar Dogan, Lars Sørgard, and participants at EARIE (Madrid September 2002) for helpful comments. Furthermore, we thank Telenor for financial support through its research program at Institute for Research in Economics and Business Administration (SNF). 2Corresponding author: University of Tromso, Department of Economics and Management, NFH, N-9037 Tromso, Norway. Tel. +47 776 45540, fax. +47 776 46020, e-mail: [email protected].
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