Politics, Regulation And Investment In The Telecommunications Industry

This paper attempts to examine the vertically integrated incumbent's incentive to invest in its network, which can benefit both the incumbent and the independent rival. A Cournot model is developed that takes political economy issues into consideration, in which special-interest groups make political contributions to influence the regulator's access price decision. The game that is analyzed has four stages. Firstly, the incumbent makes an investment decision on its upstream network. Secondly, both firms lobby the regulator for a preferential access price. Then the regulator sets the access price under the political influence. Finally, two firms compete in quantities in the downstream retail market.