24 research outputs found
Excessive(?) Entry of National Telecom Networks, 1990-2001
We document entry and capacity expansion in US long-distance fiber-optic networks before and during the “telecom boom.” We disentangle the many swaps and leases between networks in order to measure owned route miles versus route miles shared with other carriers. Entry appears much more moderate when these shared miles are not counted. Strategic behavior can lead to excessive entry, and we find evidence of such behavior regarding total miles (including swaps and leases) but not regarding owned miles. We conclude that entry was excessive only with regard to swaps and leases, but not with regard to the physical building of the networks.telecommunications, investment, preemption
Tacit Collusion in Capacity Investment: The Role of Capacity Exchanges
In many capacity-intensive industries (e.g. electricity, bandwidth), exchanges allow firms to buy and sell wholesale capacity before selling on the retail market. This allows firms to smooth demand shocks, but it also raises suspicions that exchanges facilitate tacit collusion to limit capacity investment. This paper models investment and exchange in a one-shot game and in a repeated game with tacit collusion. It finds that the presence of the exchange does not reduce total capacity investment, and thus does not raise consumer prices. In fact, the exchange may make it more difficult to sustain tacit collusion.capacity investment; capacity exchanges; business to business exchanges; tacit collusion
THE BUCKET BRIGADE PRICING AND NETWORK EXTERNALITIES IN PEER-TO-PEER COMMUNICATIONS NETWORKS
This Paper analyzes the pric ing of transit traffic in wireless peer-to-peer networks using the concepts of direct and indirect network externalities. We first establish that without any pricing mechanism, congestion externalities overwhelm other network effects in a wireless data network. We show that peering technology will mitigate the congestion and allow users to take advantage of more the positive network externalities. However, without pricing, the peering equilibrium breaks down just like a bucket brigade made up of free-riding agents. With pricing and perfect competition, a peering equilibrium is possible and allows many more users on the network at the same time. However, the congestion externality is still a problem, so peering organized through a club may be the best solution.
Platform Competition with “Must-Have” Components
In platform-component systems with indirect network effects, some components are so popular with consumers that they have strong bargaining positions and can be regarded as “must-have” from the point of view of the platform. For example, ESPN is a must-have component of cable TV platforms. This paper presents a theoretical model to assess how platform market structures affect the likelihood of exclusive versus non-exclusive contracts between platforms and components. The model evaluates the combined impacts of (i) the popularity of the component, (ii) the platform market share difference and (iii) platform technological compatibility on the platform-component contractual arrangements. It shows that a component provider is more likely to sign exclusive access contracts with a single platform if its popularity is high, the platform market share difference is large, and platform compatibility is low.network effects, bargaining, platforms
Entry and Vertical Disintegration
We formalize and extend George Stigler’s famous article “The division of labor is limited by the extent of the market.” We emphasize economies of scale in intermediate goods production as a determinant of firm boundaries and vertical control. We show that there are potential coordination failures which may prevent efficient vertical disintegration, and we discuss how these might be either overcome or used to the advantage of incumbent firms.entry, vertical integration, specialization
Excessive(?) Entry of National Telecom Networks, 1990-2001
We document entry and capacity expansion in US long-distance fiber-optic
networks before and during the "telecom boom." We disentangle
the many swaps and leases between networks in order to measure owned
route miles versus route miles shared with other carriers. Entry appears
much more moderate when these shared miles are not counted. Preemption
strategies can lead to excessive entry, and we find evidence for
preemptive behavior regarding total miles (including swaps and leases)
but less for preemption regarding owned miles. We conclude that entry
was excessive only with regard to swaps and leases, but not with regard
to the physical building of the networks