Access Charge Regulations with Asymmetric Mobile Network Operators

TY - UNPB

T1 - Access Charge Regulations with Asymmetric Mobile Network Operators

AU - Datta, Bipasa

AU - Apinianon, Jittinan

PY - 2022

Y1 - 2022

N2 - In this paper, we analyse competition between two facility-based mobile network operators under different access charge regulatory regimes in the presence of firm asymmetry both with respect to cost structures as well as firms’ reputations. We do not assume that the incumbent necessarily has a reputational advantage; rather, we analyse situations where either network can have a better reputation than the other. We then examine the effects of optimal access charge regulation on the potential for entry and social welfare. We analyse three different regulatory policy regimes: (1) no regulation, (2) the symmetric cost-based access charge regulation, and (3) the asymmetric cost-based access charge regulation. We show that, in unregulated markets, the low-cost firm sets a higher mark-up on access charge and can become dominant even with an inferior reputation relative to its high-cost rival. Consequently, regulations on access charges are necessary to eliminate distortions and to promote social welfare. However, from the perspective of implementation, optimal regulatory policies need to be considered very carefully. Indeed, asymmetric regulation can be an effective policy for facilitating entry especially for a new firm with high costs and can be social welfare enhancing if the cost differences and the reputational discrepancies between the two networks are not too substantial. Otherwise, the asymmetric regulation can threaten social welfare implying that symmetric regulation may be more appropriate in such circumstances.KEYWORDS: Mobile network operators, cost asymmetry, reputation asymmetry, access charge regulation, social welfare.JEL Classification Codes: L13, L51, L96.

AB - In this paper, we analyse competition between two facility-based mobile network operators under different access charge regulatory regimes in the presence of firm asymmetry both with respect to cost structures as well as firms’ reputations. We do not assume that the incumbent necessarily has a reputational advantage; rather, we analyse situations where either network can have a better reputation than the other. We then examine the effects of optimal access charge regulation on the potential for entry and social welfare. We analyse three different regulatory policy regimes: (1) no regulation, (2) the symmetric cost-based access charge regulation, and (3) the asymmetric cost-based access charge regulation. We show that, in unregulated markets, the low-cost firm sets a higher mark-up on access charge and can become dominant even with an inferior reputation relative to its high-cost rival. Consequently, regulations on access charges are necessary to eliminate distortions and to promote social welfare. However, from the perspective of implementation, optimal regulatory policies need to be considered very carefully. Indeed, asymmetric regulation can be an effective policy for facilitating entry especially for a new firm with high costs and can be social welfare enhancing if the cost differences and the reputational discrepancies between the two networks are not too substantial. Otherwise, the asymmetric regulation can threaten social welfare implying that symmetric regulation may be more appropriate in such circumstances.KEYWORDS: Mobile network operators, cost asymmetry, reputation asymmetry, access charge regulation, social welfare.JEL Classification Codes: L13, L51, L96.

M3 - Discussion paper

BT - Access Charge Regulations with Asymmetric Mobile Network Operators

ER -