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Regulation and Investment in Network Industries: Evidence from European Telecoms

Author

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  • Michał Grajek
  • Lars-Hendrik Röller
Abstract
We provide evidence of an inherent trade-off between access regulation and investment incentives in telecommunications by using a comprehensive data set covering more than 70 fixed-line operators in 20 countries over 10 years. Our econometric model accommodates different investment incentives for incumbents and entrants, a strategic interaction of entrants' and incumbents' investments, and endogenous regulation. We find access regulation to have a negative effect on both total industry and individual carrier investment. Thus, promoting market entry by means of regulated access undermines incentives to invest in facilities-based competition. Moreover, we find evidence of a regulatory commitment problem: higher investments by incumbents encourage regulated access provision.

Suggested Citation

  • Michał Grajek & Lars-Hendrik Röller, 2012. "Regulation and Investment in Network Industries: Evidence from European Telecoms," Journal of Law and Economics, University of Chicago Press, vol. 55(1), pages 189-216.
    • Handle: RePEc:ucp:jlawec:doi:10.1086/661196
    DOI: 10.1086/661196
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    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • L59 - Industrial Organization - - Regulation and Industrial Policy - - - Other
    • L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications

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