Regulating Broadband In Chile: The Debate Over Open Access

2017 words, 9 pages

Intro Sample...


UGBA101A

1. Telephone companies were given the opportunity to set their own prices unless Chile’s antitrust agency determined that there was not sufficient competition for a certain service or geographical region. As a result, the telecommunications regulatory agency, known as SUBTEL, would determine the maximum price the dominating firm could charge for the given service or region. However, firms outside of the one dominating were allowed to set any price they saw fit and could change the prices whenever they desired. The price that SUBTEL ultimately established was reliant upon assumptions of an efficient firm in the industry, such as technology and cost structures. Furthermore, SUBTEL was responsible for predicting demand for a... View More »

Body Sample...



As for new entrants, these new firms charge the same price as the monopoly does, where the dominant firm’s marginal cost = marginal revenue. While the monopoly operates at zero economic profit, the new entrants initially build networks that serve only high volume customers in areas that are less costly to wire. Thus, the new firms’ marginal cost curve is in fact lower than the incumbent’s marginal cost curve due to a difference in their cost structures. Thus, the new firms operate at an economic profit. If they were to continue to invest in their businesses and expand, they would also have a zero economic profit like the incumbent. However, because they operate at an economic profit, these new entrants have no incentive to expand. These new firms stay the size that they are, leading to a higher producer surplus and a deadweight loss to society.
This regulation is thus asymmetric because the monopoly earns zero economic profit even though they made the initial investments, while the new firms earn an economic profit and also a deadweight loss to society. The effects of this regulation are thus that there will be many new firms, causing an increase in supply. As new firms enter, supply increases, decreasing the actual market equilibrium price. Because regulation will always only just cover the economic costs of the dominant firm so they earn zero economic profit, then the new entrants will continue to earn a larger and larger economic profit, ultimately providing more of a deadweight loss to society.
3. Services-based competition takes into account that the ...

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