Level of Access and Infrastructure Investment in Network Industries

In this paper we study the effect of the terms of access to an incumbent's infrastructure on an entrant's incentives to build its own infrastructure. Setting a high level of access (e.g., a resale arrangement), which requires relatively small up-front investment for entry, accelerates market entry, but at the same time delays the deployment of the entrant's infrastructure. This is also true for a lower access price set for a given access level. We show that the socially optimal access price can vary non-monotonically with the level of access. We also consider two levels of access, and show that providing the entrant with multiple levels of access delays infrastructure building