NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Pricing Capital Under Mandatory Unbundling and Facilities Sharing

Robert S. Pindyck

NBER Working Paper No. 11225
Issued in March 2005
NBER Program(s):   AP   IO

The regulation of telecommunications, railroads, and other network industries has been based on mandatory unbundling and facilities sharing - entrants have the option to lease part or all of incumbents' facilities if and when they desire, at rates determined by regulators. This flexibility is of great value to entrants, but because investments are largely irreversible, it is costly to supply by incumbents. However, pricing formulas used by regulators to set lease rates for capital do not compensate incumbents for this flexibility, so that incumbents are effectively forced to subsidized entrants, discouraging further investments. This paper shows how pricing formulas used to set lease rates can be adjusted to account for the transfer of option value from incumbents to entrants, and estimates the average size of the adjustment for land-based local voice telecommunications in the U.S.

download in pdf format
   (660 K)

email paper

This paper is available as PDF (660 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w11225

Users who downloaded this paper also downloaded these:
Pindyck w10287 Mandatory Unbundling and Irreversible Investment in Telecom Networks
Clarke, Hassett, Ivanova, and Kotlikoff w10482 Assessing the Economic Gains from Telecom Competition
Cheung, Chinn, and Fujii w14168 Pitfalls in Measuring Exchange Rate Misalignment: The Yuan and Other Currencies
Pindyck w3307 Irreversibility, Uncertainty, and Investment
Pindyck w14755 Sunk Costs and Risk-Based Barriers to Entry
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us