Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/215080 
Year of Publication: 
2020
Series/Report no.: 
CESifo Working Paper No. 8078
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
In this paper, we study the impact of co-investment by incumbents and entrants on the roll-out of network infrastructures under demand uncertainty. We show that if entrants can wait to co-invest until demand is realized, the incumbents' investment incentives are reduced and total coverage can be lower than in a benchmark with earlier co-investment. We consider two remedies to correct these distortions: (i) co-investment options purchased ex-ante by entrants from incumbents, and (ii) risk premia paid ex-post by entrants. We show that co-investment options cannot fully reestablish total coverage, while premia can do so in most cases, though at the cost of less entry. Finally, we show that an appropriate combination of ex-ante and ex-post remedies can improve welfare.
Subjects: 
co-investment
uncertainty
opportunism
options
risk premia
JEL: 
L96
L51
Document Type: 
Working Paper
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