Three essays on competition and regulation

Chapter 1: Cost-based Termination Charge Regulation when Fixed and Mobile Networks Compete for Subscribers. This paper studies termination charges in the telecommunications industry (i.e., the fees for receiver's network to impose on caller's network for call termination services). I address two unsettled questions on termination charges: (i) why mobile networks have incentives to set above-cost termination charges and (ii) what are the welfare consequences of symmetric cost-based termination charge regulation. I propose an oligopolistic Hotelling model which explicitly considers the competition for subscribers between fixed and mobile networks and show that such competition can potentially explain high mobile termination charges. When both mobile-to-mobile and fixed-to-mobile substitutions are present, there exists a tradeoff from above-cost mobile termination charges: (i) profit gain from mobile market expansion and (ii) profit loss from intense price competition. I show that above-cost mobile termination charges are profitable when the market share effect outweighs the price competition effect - which is likely to occur for a large inter-network customer base or a small inter-network product differentiation. Moreover, the cost-based regulation on fixed and mobile termination charges, which was recommended by European Commission (2009), may have potential welfare-enhancing effects.;Chapter 2: Exclusive Dealing and Investment Incentives in the Presence of Risk of Renegotiation Breakdown. Exclusive dealing (i.e., a contract that prohibits a buyer from trading with other sellers) may affect competition through the investment incentives and entry. My model considers the case where the contracts are renegotiable and the incumbent seller facing a potential entry threat is able to invest in the relationship with a buyer. My paper departs from the existing literature by considering the risk of breakdown in the renegotiation process. In this setup, exclusivity may have contrasting effects on competition through (i) investment promotion and (ii) foreclosure of efficient entry. The profitability and welfare consequences of exclusive dealing are decided by the relative importance of these two effects which in turn mainly relies on the risk of renegotiation breakdown. More specifically, if the risk of breakdown is very low, exclusive contracts will be profitable and welfare-enhancing. However, the profitable and welfare-reducing exclusive dealing is feasible for a sufficiently high risk of breakdown. This paper restores the inefficient foreclosure by exclusive dealing even considering investments and renegotiation, highlighting the role of risk of renegotiation breakdown.;Chapter 3: Dynamic Incentives of Tying in Two-sided Markets. This paper investigates tying arrangements in two-sided markets. Optimal pricing structure of two-sided markets differs from that of standard one-sided markets. In two-sided markets, platforms charge subscription fees in order to utilize inter-group externalities. The main purpose of this paper is to explore how inter-group externalities affect tying incentives through platforms' price and R&D competition. I adopt a two-sided Hotelling model where two platforms compete in prices and investments and show that tying leads to the distortion of R&D incentives as well as the exclusion of rival platforms. Moreover, there exist certain parameter configurations such that tying is profitable and welfare-reducing through foreclosing rival's R&D investments. Dynamic incentives of tying, which have not been considered in the existing literature, provide a new rationale for the regulation on tying in two-sided markets.