Distorted access regulation with strategic investments: Regulatory non-commitment and spillovers revisited

We reexamine the properties of access regulation and an incumbent’s incentive for infrastructure investment under regulatory non-commitment and spillovers through access. The results show that when the degree of spillover is small, the incumbent’s strategic opportunity to invest in infrastructure distorts the access charge set by a regulator from a welfare perspective. In particular, when the degree of spillover is small and the incumbent’s investment cost is high (low), the incumbent has an incentive to utilize regulatory non-commitment to induce a high (low) access charge by overinvesting (underinvesting) in infrastructure.