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Strategic bypass deterrence
Gautier, Axel; Bloch, Francis
2011V Intertic Conference on Innovation, Competition and the New Economy


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Keywords :
Make-or-buy; Access price; Bypass
Abstract :
[en] In liberalized network industries, entrants can either compete for service using the existing infrastructure (access) or deploy their own infrastructure capacity (bypass). In this paper, we demonstrate that, under the threat of bypass, the access price set by an unregulated and vertically integrated incumbent is compatible with productive efficiency. This means that the entrant bypasses the existing infrastructure only if it can produces the network input more efficiently. The incumbent lowers the access price compared to the ex-post efficient level to strategically deter inefficient bypass by the entrant. Accordingly, from a productive efficiency point of view, there is no need to regulate access prices when the entrant has the option to bypass. Despite that, we show that restricting the possibilities of access might be profitable for consumers.
Research center :
CREPP - Centre de Recherche en Économie Publique et de la Population - ULiège
Disciplines :
Author, co-author :
Gautier, Axel  ;  Université de Liège - ULiège > HEC-Ecole de gestion : UER > Economie industrielle
Bloch, Francis
Language :
Title :
Strategic bypass deterrence
Publication date :
17 October 2011
Event name :
V Intertic Conference on Innovation, Competition and the New Economy
Event place :
University of Venice, Ca’ Foscari, Department of Economics, Italy
Event date :
October 17
Audience :


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