Access price regulation, investment and entry in telecommunications

We consider a model with a vertically integrated monopolist network provider who faces rival operators in the retail market. We examine the network operator's incentives for infrastructure investment. We find that investments are below the social optimum even when there is no regulation, and access price regulation further reduces investment incentives. We show that the underinvestment problem may have negative effects on the viability of competition. Access price regulation does not necessarily reduce the likelihood of foreclosure, and in the presence of regulation, rivals are most likely to be foreclosed when they would bring highest benefits to consumers.