Abstract
This paper provides a simple model that examines a firm’s incentive to invest in a network infrastructure through coalition formation in an openaccess environment with a deregulated retail market. A regulator faces a dilemma between inducing an incentive for efficient investment and reducing the distortion generated by imperfect competition. We show that, in such a case, the degree of cost-reducing effect of the investment is crucial from a welfare point of view. In particular, when network investment through coalition formation creates a large (small) cost-reducing effect, the regulator can (should not) delegate an investment decision to fi rms with an appropriate level of access charge.
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