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GRADUAL NETWORK EXPANSION AND UNIVERSAL SERVICE OBLIGATIONS
Author(s) -
Gautier Axel,
Mizuno Keizo
Publication year - 2011
Publication title -
annals of public and cooperative economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.526
H-Index - 37
eISSN - 1467-8292
pISSN - 1370-4788
DOI - 10.1111/j.1467-8292.2011.00432.x
Subject(s) - constraint (computer aided design) , sunk costs , industrial organization , business , service (business) , microeconomics , connection (principal bundle) , economics , marketing , mechanical engineering , structural engineering , engineering
** : Universal service obligations are usually not competitively neutral as they modify the way firms compete in the market. In this paper, we consider a continuum of local markets in a dynamic setting with a stochastically growing demand. The incumbent must serve all markets (ubiquity) possibly at a uniform price and an entrant decides on its market coverage before firms compete in prices. Connecting a market involves a sunk cost. We show that the imposition of a uniform price constraint modifies the timing of entry: for low connection cost markets, entry occurs earlier while for high connection cost markets, entry occurs later.