Working Paper No. 3a: From Legacy to the Future: Incentivising Demand Migration through Access Fees

In this paper, we analyze how wholesale access fees of a crucial input can be utilized to influence demands for products of different technologies and the deployment sequence between an incumbent and entrant firm. In a setting of multi-product competition with horizontally differentiated products we find that the access fee gives rise to asymmetric pricing incentives for the entrant firm if she offers a legacy and new product in parallel. The entrant’s price for the new product decreases in the access fee while its legacy price increases with the aim to induce intra-brand legacy-to-new migration of demand. Furthermore, a regulator can depart from the socially optimal access fee and use this entrant’s pricing channel to effectively promote demand side take-up of the new technology. Lastly, it is welfare beneficial in a sequential deployment process, that the entrant moves first to introduce the new technology while such a move can be fostered by a strategic use of the access fee that lowers profits from competition based on legacy products.

A previous version of this working paper has been published under the title “Copper to Fibre Migration: Regulated Access Fees Incentivising Migration” and can be found here. The previous version of this paper was also accepted at the 31st European ITS Conference 2022 (Gothenburg, Sweden). The published version can be found here.