Person:

Dogan, Pinar

In this paper, we first provide a simple framework for cooperation in product development between competitors. We put forward the tradeoff between the benefits obtained through development cost sharing and the cost of intensified competition due to reduced product differentiation, which implies that no cooperation can be an equilibrium outcome. We allow for firms to cooperate partially, i.e., to develop some product components jointly, but not necessarily all components. This enables us to study the factors that may have an effect on the degree of cooperation in product development, both in the presence and in the absence of process R&D. We also analyze the interaction between cooperation decisions on product development and process R&D. By considering a direct link between the two, we show that the degree of cooperation in product development may adversely affect the intensity of cooperation in process R&D.

This paper studies competition in a network industry with a stylized two layered network structure, and examines: (i) price and connectivity incentives of the upstream networks, and (ii) incentives for vertical integration between an upstream network provider and a downstream firm. The main result of this paper is that vertical integration occurs only if the initial installed-base difference between the upstream networks is sufficiently small, and in that case, industry is configured with two vertically integrated networks, which yields highest incentives to invest in quality of interconnection. When the installed-base difference is sufficiently large, there is no integration in the industry, and neither of the firms have an incentive to invest in quality of interconnection. An industry configuration in which only the large network integrates and excludes (or raises cost of) its downstream rival does not appear as an equilibrium outcome: in the presence of a large asymmetry between the networks, when quality of interconnection is a strategic variable, the large network can exercise a substantial market power without vertical integration. Therefore, a vertically separated industry structure does not necessarily yield procompetitive outcomes.

The “ladder of investment” is a regulatory approach proposed by Cave (2006), which has been widely embraced by national regulatory authorities in the European telecommunications sector. The approach entails providing entrants, successively, with different levels of access—the “rungs” of the investment ladder, while inducing them to climb the ladder by setting an access charge that increases over time or by withdrawing access obligations after some pre-determined date (i.e., by setting sunset clauses). Proponents of the ladder of investment approach claim that such regulatory measures would make service-based entry and facility-based entry complements—albeit they have been traditionally viewed as substitutes—in promoting competition. The regulators, thus, have shown a strong interest in this approach. The paper provides a critical review of the ladder of investment approach by setting out its two underlying assumptions and discussing their validity with references to the related industrial organization literature.

In this paper, we analyze the incentives of an incumbent and an entrant to migrate from an "old" technology to a "new" technology, and discuss how the terms of wholesale access affect this migration. We show that a higher access charge on the legacy network pushes the entrant firm to invest more, but has an ambiguous effect on the incumbent's investments, due to two conflicting effects: the wholesale revenue effect, and the business migration effect. If both the old and the new infrastructures are subject to ex-ante access regulation, we also find that the two access charges are positively correlated.

In this paper, we consider an unregulated incumbent who owns a broadband infrastructure and decides on how much access to provide to a potential entrant. The level of access, i.e., the network elements that are shared in the provision of competing broadband services, not only determines the amount of investment the entrant needs to undertake to enter the market, but also the intensity of post-entry competition. We consider an access scheme that determines an access level and an associated two-part tariff. We show that the equilibrium level of access is higher when the sensitivity of product differentiation to the level of access is lower, and when the marginal investment cost is higher. We also show that the unregulated incumbent sets a suboptimally low (high) level of access if the degree of service differentiation is sufficiently high (low).

In this paper we provide a model of Research Joint Venture (RJV), and study the incentives of competing firms to cooperate in product development. Firms that participate in the RJV decide on the product components for joint development, i.e., they decide on how much to cooperate. We consider three cases: (i) an RJV with an exogenous size and an endogenous scope, (ii) an RJV with an endogenous size and an exogenous scope, and (iii) an RJV with an endogenous size and scope. Using numerical simulations we show that, on average, there is a negative relationship between the size and the scope of the RJV in both cases (i) and (ii). In case (iii), we find a positive relationship between the equilibrium size and the equilibrium scope of the RJV. Furthermore, both the equilibrium size and scope of the RJV are increasing with the industry size.