How Different is Wireless Access? Implications for Internet Mergers

Network hierarchies in the Internet are often not fixed: two providers can be simultaneously input supplier and retailer, in a routing process, while being horizontally competing in another. We introduce a stylised network model capturing these aspects of the Internet to study the impact of differentiation introduced by wireless access on prices and profits. We then study the incentives for, and welfare impact of, a merger between the wireless provider and a local bottleneck fixed access one. These effects crucially depend on the degree of differentiation between the wireless and fixed Internet access modalities. Pricing, at each router, follows the motor-way toll metaphor