International Complementarities in the Internet: Should Local Access Prices be Regulated?1

The Internet can be seen as the convergence of different industries, such as telecommunication, software and media, into an international oligopoly offering complementary products. In most of these industries we have dominant firms, but domestic telecommunication firms providing local access are the only ones facing a restrictive regulatory regime. The other dominant firms are typically US owned. We show that strict regulation of the domestic telecommunication firm may have negative welfare effects for other countries than the USA, particularly if we observe fierce competition in the end-user market. We are indebted to seminar participants at Norwegian School of Economics and Business Administration and Norwegian University of Science and Technology for helpful comments. We thank the programme SKIKT in the Research Council of Norway for financial support through the Institute for Research in Economics and Business Administration.