Network Cooperation vs. Network Competition

Conference: CTTE 2011 - 10th Conference of Conference of Telecommunication, Media and Internet Techno-Economics
05/16/2011 - 05/18/2011 at Berlin, Germany

Proceedings: CTTE 2011

Pages: 7Language: englishTyp: PDF

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Clemens, Georg (Düsseldorf Institute for Competition Economics, Düsseldorf, Germany)

This paper examines fixed-cost investment decisions in networks on duopolistic markets with service customization. We show that, in contrast to the Hotelling case for differentiated services, the duopolists choose a socially optimal investment level. This outcome is compared to a cooperative investment in a joint network. As opposed to the case of co-operation in a Hotelling setting, firms always cooperate if service customization takes place. We furthermore include a welfare analysis demonstrating that network cooperation increases consumer surplus. Moreover we show that cooperation does not increase the stability of a collusive agreement. Hence one can argue for an exemption from article 101 TFEU of network cooperation for service customization.