Discussion Papers

Roman Inderst, Jürgen Kühling, Karl-Heinz Neumann, Martin Peitz

Investment, competition and access to NGA network

No. 344 / September 2010

Summary

This paper analyses economic incentive structures related to investment in NGA before the background of a limited investment in NGA in Germany. Eventually existing impediments for (more) investments are analysed and assessed. Uncertainty as a potential impediment to investment will be considered according to systematic and project-specific risks of a NGA investment which cannot be diversified.

The main part of the paper presents the role of contracts and market characteristics related to NGA investment in a modelling context. The duopoly model which is developed for this purpose characterises many nuances of the relationship between competition and investment. Incentives to invest are analysed within the framework of a dynamic strategic model. The strategic players in the market are the network operators (incumbent and competitors), the access seekers and the regulatory authority.

The model and its results are developed gradually. As a first step we will look at unregulated markets. In a first scenario no operator provides access to its NGA network to the other operator. In a second scenario voluntary access is provided by the investing operator without any regulatory intervention. Initially, the access contract is concluded ex post, which means after the investment has been conducted. Then we consider the scenario of an ex ante access contract, which will be concluded before the investment has been conducted. Then regulatory intervention is introduced into the model. We distinguish different pricing structures for the access prices. The model analysis identifies the existing incentives to invest under different regulatory conditions and the impact on competition. Thereby major effects on allocative and dynamic efficiency shall be identified.

The final chapter looks at opportunities to incentivice NGA investments. We consider measures for managing or reducing the risk, new access pricing models for access seekers and long-term access contracts in connection with demand commitments and corresponding price differentiation. Concrete recommendations regarding these (potential) policy measures are developed.

Full version only available in German language.

Discussion Paper is available for download.

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