Infrastructure investment and optimal access regulation in the different stages of telecommunications market liberalization

• We compare the optimal access price in the different stages of liberalization.
• In the 1st stage, the regulator balances between static and dynamic efficiency.
• In the 2nd stage, the regulator sets a low access price if entrants over-duplicate.
• In the 3rd stage, over-duplication does not always drive the access price down.

In this paper, we compare the optimal access regulation under three different market configurations that approximate the different stages of telecommunications market liberalization. We show that in the first stage of market liberalization the regulator has to balance between static efficiency and investment and that the optimal access price may be above marginal cost. In the second stage, two different outcomes are possible. If entrants tend to underinvest, the regulator balances between static efficiency and investment. If entrants tend to overinvest, the regulator sets the access price as low as possible in order to prevent or limit infrastructure duplication. Interestingly, we find that in the third stage of market liberalization the regulator may decide to promote infrastructure duplication and to set the access price above the price in the first stage of market liberalization, even if telecommunications network operators tend to overinvest in infrastructure duplication.