Title: The access regulation and investment in quality

Authors: Gokce Kurucu, Ismail Saglam

Addresses: Department of Banking and Finance, European University of Lefke, Gemikonagi Campus, Lefke TRNC Mersin 10, 2900, Turkey. ' Department of Economics, TOBB University of Economics and Technology, Sogutozu, Ankara, 06560, Turkey

Abstract: This paper investigates the impact of access price regulation on the quality of service provided in regions with different demand structures. We investigate the incumbent firm|s incentives for quality investment when there is a Bertrand competition between the entrant and the incumbent and in the case of tacit collusion where the entrant and incumbent are monopolies in different regions. We show that the optimal quality decision depends on the responsiveness of demand to quality, i.e., the quality elasticity of demand, as well as the price elasticity of demand in a specific region. Additionally, the effects of population size on the optimal price quality pair are shaped by the relationship between the size of population and the price and quality elasticities in that region.

Keywords: quality investment; access pricing; network industries; price regulation; quality of service; QoS; elasticity of demand; population size; regional demand.

DOI: 10.1504/IJMNE.2009.030591

International Journal of Management and Network Economics, 2009 Vol.1 No.3, pp.261 - 274

Published online: 24 Dec 2009 *

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