Access pricing, competition, and incentives to migrate from “old” to “new” technology

Abstract

In this paper, we analyze the incentives of an incumbent and an entrant to migrate from an “old” technology to a “new” technology, and discuss how the terms of wholesale access affect this migration. We show that the coverage of the new technology varies non-monotonically with the access price of the old technology: a higher access charge on the legacy network pushes the entrant firm to invest more, but has an ambiguous effect on the incumbent's investments, due to two conflicting effects: the wholesale revenue effect, and the retail-level migration effect. When the new technology is also subject to access provision, we find that migration from the old to the new generation network at the wholesale level can be incentivized if a positive correlation between the access prices (to the two old and new generation networks) is maintained.