Opening Networks To Competition: The Regulation And Pricing Of Access (topics In Regulatory Economics And Policy)

David Gabel and David F. Weiman The chapters in this volwne address the related problems of regulating and pricing access in network industries. Interconnection between network suppliers raises the important policy questions of how to sustain competition and realize economic efficiency. To foster rivalry in any industry, suppliers must have access to customers. But unlike in other sectors, the very organization of network industries creates major impediments to potential entrants trying to carve out a niche in the market. In traditional sectors such as gas, electric, rail, and telephone services, these barriers take the form of the large private and social costs necessary to duplicate the physical infrastructure of pipelines, wires, or tracks. Few firms can afford to finance such an undertaking, because the level of sunk costs and the very large scale economies make it extremely risky. In other newer sectors, entrants face less tangible but no less pressing constraints. In the microcomputer industry, for example, high switching costs can prevent users from experimenting with alternative, but perhaps more efficient hardware platforms or operating systems. Although gateway technologies can reduce these barriers, the installed base of an incumbent can create powerful bandwagon effects that reinforce its advantage (such as the greater availability of compatible peripherals and software applications). In the era of electronic banking, entrants into the automated teller machine· (A TM) and credit card markets face a similar problem of establishing a ubiquitous presence. This book addresses the related problems of regulating and pricing access in network industries. Interconnection between network suppliers raises questions of how to sustain competition and realize economic efficiency. New entrants must have access to customers in a competitive industry, but the very nature of network industries limits potential entrants. The large fixed and sunk costs of constructing networks and the difficulty in acquiring the expertise and competencies embodied in the managerial and organizational structure of incumbents in the network industry make it difficult to enter this marketplace. As a result, new entrants, realizing that they may not be able to provide customers with service comparable to that of the incumbents, often look to negotiate an interconnection agreement. This book is divided into two parts. Part I assesses regulation and pricing access in network industries from an analytical and policy perspective. Part II presents a variety of case studies examining interconnection issues over time and across industries. The book concludes with the idea that no single economic model or theory is appropriate for all network industries and that one needs to factor in the policy objectives, economic forces, and trade-offs for the specific industry before arriving at a final policy decision. Front Matter....Pages i-x Introduction....Pages 1-6 Front Matter....Pages 7-7 One-Way Networks, Two-Way Networks, Compatibility, and Public Policy....Pages 9-29 Markup Pricing for Interconnection: A Conceptual Framework....Pages 31-47 Problems in Creating Effective Competition....Pages 49-71 Front Matter....Pages 73-73 Historical Perspectives on Competition and Interconnection Between Local Exchange Companies: The United States, 1894–1914....Pages 75-105 On the Frontier of Deregulation: New Zealand Telecommunications and the Problem of Interconnecting Competing Networks....Pages 107-135 Competition Access Policies in the Rail Freight Industry, with Comparisons to Telecommunications....Pages 137-157 Social Obligations and Access Pricing: Telecommunications and Railways in the U.K.....Pages 159-179 Access Demands and Network Joint Ventures....Pages 181-220 Exclusionary Behavior in the Market for Operating System Software: The Case of Microsoft....Pages 221-238 Back Matter....Pages 239-245