Rational Regulatory Policy for the Digital Economy: Theory and EU Policy Options

Telecommunications is a key element of the ICT sector which has been shaped by strong innovation dynamics since the 1990s. Market dynamics in OECD telecommunications markets are analyzed. We present new ideas about efficient regulation, emphasizing the need to adopt a broader international perspective. Analytical innovations also include the discussion of an adequately-modified Hitch-Sweezy oligopoly model. Moreover, we suggest differentiated two-part tariffs as an ideal welfare-maximizing approach in both wholesale and end-product markets. From a theoretical point-of-view, the need to avoid regulatory uncertainty is also emphasized. Theoretical progress is contrasted with regulations in the EU and the US. The EU offers a broad range of different regulatory approaches where the link between framework regulation and national regulation is rather complex. The internationalization of telecommunications requires a broader cooperation among regulators in the OECD.