WIK Working Paper No. 3: Copper to Fibre Migration: Regulated Access Fees Incentivising Migration
To shed more light on consumer-sided demand migration, we adapt Chen & Riordan’s (2007) Spokes Model of spatial competition to a duopolistic-multi-product firm setting in which both firms simultaneously offer fibre and copper products comparable to Brito & Tselekounis (2017). Our model will be designed as a 2x2-product Spokes Model where two operators, an Incumbent and an Entrant, offer each a fibre and a copper based end customer internet product, with the Entrant paying an access fee for the latter one. Deriving operators’ profits given demand shifts induced by asymmetric pricing strategies, we find that both operators experience trade-offs in the wholesale access fees, with the trade-off of the Incumbent being more binding as he has the higher interest in keeping demand in the copper network high. We characterise the relation of fibre take-up and welfare by finding out that fibre take-up and welfare both increase simultaneously in the copper wholesale access fee up to a critical threshold. Beyond this threshold, additional take-up will be paid by loss of total welfare.
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