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Natural Monopoly and Distorted Competition: Evidence from Unbundling Fiber-Optic Networks

Author

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  • Naoaki Minamihashi
Abstract
Can regulation solve problems arising from a natural monopoly? This paper analyzes whether “unbundling,” referring to regulations that enforce sharing of natural monopolistic infrastructure, prevents entrants from building new infrastructure. It models and estimates a dynamic entry game to evaluate the effects of regulation, using a dataset for construction of fiber-optic networks in Japan. The counterfactual exercise shows that forced unbundling regulation leads to a 24% decrease in the incidence of new infrastructure builders. This suggests, therefore, that when a new technology is being diffused, regulation to remove a natural monopoly conversely involves risks that regulated monopolists’ shares will increase.

Suggested Citation

  • Naoaki Minamihashi, 2012. "Natural Monopoly and Distorted Competition: Evidence from Unbundling Fiber-Optic Networks," Staff Working Papers 12-26, Bank of Canada.
    • Handle: RePEc:bca:bocawp:12-26
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    Cited by:

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    2. Raphael Corbi & Fabio Miessi Sanches, 2022. "Church Competition, Religious Subsidies and the Rise of Evangelicalism: a Dynamic Structural Analysis," Working Papers, Department of Economics 2022_09, University of São Paulo (FEA-USP).
    3. I. Vogelsang, 2015. "Will the U.S. and EU telecommunications policies converge? A survey," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 42(2), pages 117-155, June.
    4. Bourreau, Marc & Grzybowski, Lukasz & Hasbi, Maude, 2019. "Unbundling the incumbent and deployment of high-speed internet: Evidence from France," International Journal of Industrial Organization, Elsevier, vol. 67(C).
    5. Joan Calzada & Begoña García-Mariñoso & Jordi Ribé & Rafael Rubio & David Suárez, 2018. "Fiber deployment in Spain," Journal of Regulatory Economics, Springer, vol. 53(3), pages 256-274, June.
    6. Briglauer, Wolfgang & Cambini, Carlo & Fetzer, Thomas & Hüschelrath, Kai, 2017. "The European Electronic Communications Code: A critical appraisal with a focus on incentivizing investment in next generation broadband networks," Telecommunications Policy, Elsevier, vol. 41(10), pages 948-961.
    7. Rajabiun, Reza & Middleton, Catherine, 2018. "Strategic choice and broadband divergence in the transition to next generation networks: Evidence from Canada and the U.S," Telecommunications Policy, Elsevier, vol. 42(1), pages 37-50.
    8. Klaus Friesenbichler, 2019. "What Explains Aggregate Telecom Investments? Evidence From an EU-OECD Panel," WIFO Working Papers 583, WIFO.
    9. Bertschek, Irene & Briglauer, Wolfgang & Hüschelrath, Kai & Krämer, Jan & Frübing, Stefan & Kesler, Reinhold & Saam, Marianne, 2016. "Metastudie zum Fachdialog Ordnungsrahmen für die Digitale Wirtschaft: Im Auftrag des Bundesministeriums für Wirtschaft und Energie (BMWi)," ZEW Expertises, ZEW - Leibniz Centre for European Economic Research, number 147040.
    10. Otsu, Taisuke & Pesendorfer, Martin & Takahashi, Yuya, 2013. "Testing for equilibrium multiplicity in dynamic Markov games," LSE Research Online Documents on Economics 101968, London School of Economics and Political Science, LSE Library.
    11. Taisuke Otsu & Martin Pesendorfer & Yuya Takahashi, 2016. "Pooling data across markets in dynamic Markov games," Quantitative Economics, Econometric Society, vol. 7(2), pages 523-559, July.
    12. Briglauer, Wolfgang & Cambini, Carlo & Melani, Sauro, 2016. "How to Fill the Digital Gap? The (Limited) Role of Regulation," VfS Annual Conference 2016 (Augsburg): Demographic Change 145480, Verein für Socialpolitik / German Economic Association.
    13. Pesendorfer, Martin & Takahashi, Yuya & Otsu, Taisuke, 2014. "Testing Equilibrium Multiplicity in Dynamic Games," CEPR Discussion Papers 10111, C.E.P.R. Discussion Papers.
    14. Vogelsang Ingo, 2013. "The Endgame of Telecommunications Policy? A Survey," Review of Economics, De Gruyter, vol. 64(3), pages 193-270, December.

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    More about this item

    Keywords

    Market structure and pricing; Productivity;

    JEL classification:

    • K23 - Law and Economics - - Regulation and Business Law - - - Regulated Industries and Administrative Law
    • L43 - Industrial Organization - - Antitrust Issues and Policies - - - Legal Monopolies and Regulation or Deregulation
    • L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications

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