Access pricing and investment with stochastically growing demand

Abstract

This paper examines the effect of access charges on firms' incentives to invest in a network facility with a stochastically growing demand. An access-to-bypass equilibrium is characterized in terms of an access charge and a level of network investment cost. In the equilibrium, a leader first enters a market by building a new network. Then a follower makes a sequential investment for the construction of an additional network after accessing the incumbent's network. In an open access environment, we confirm that the incentive for preemption can be enhanced by an increase in the access charge.