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Strategic Investment under Open Access: Theory and Evidence
Author(s) -
Klumpp Tilman,
Su Xuejuan
Publication year - 2015
Publication title -
the journal of industrial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.93
H-Index - 77
eISSN - 1467-6451
pISSN - 0022-1821
DOI - 10.1111/joie.12081
Subject(s) - competitor analysis , incentive , investment (military) , business , industrial organization , ceteris paribus , market share , investment strategy , microeconomics , monetary economics , economics , finance , marketing , politics , political science , law , market liquidity
We examine the incentives of access‐regulated firms to invest in infrastructure facilities they must share with competitors. We show that investment incentives can be decomposed into a non‐strategic and a strategic part. The non‐strategic part implies that investment depends positively on market size. The strategic incentives imply that investment also depends on market composition, namely, the market shares of the facility owner and its competitors. Using a dataset of regulated electric utilities in the U nited S tates, we find evidence that transmission investments are indeed made strategically. C eteris paribus , utilities are less likely to invest, and investment levels are lower, when competitors occupy a larger share of the market.