Abstract:
The absence of industry specific regulation of access to the incumbent's
telecommunications network in New Zealand for an extended period, between
1989 and 2001, is unique compared with other countries with developed
telecommunications markets that were opened to competitive entry. This feature
of the New Zealand market provides an opportunity to compare the conduct and
performance of antitrust regulation with industry specific regulation introduced
in 2001.
Of particular interest is the place of the concepts of natural monopoly and
perfect competition in the regulation of a dynamic market. This thesis
establishes the characteristics that contribute to dynamic supply and demand
conditions in the telecommunications market including network effects,
discontinuity in demand due to participation, ongoing technological progress of
hardware, sunk costs of software development, and the irreversible investment
of augmenting capacity to meet expected growth in demand. The economic
literature on conjectural variations indicates that under such conditions the
concepts of natural monopoly and perfect competition do not explain
competitive conduct due to an unstable market equilibrium. The implication is
that forming a reasonable view of competitive conduct is limited to the present
period of time.
It is shown that decisions made under antitrust regulation are limited to the
particular context of disputed competitive conduct, and these decisions do not
speculate on future competitive conduct. In contrast, industry specific regulation
has formed a sequence of views of competitive conduct, looking forward, that is
based on concepts of natural monopoly and perfect competition. It is observed
that with time, these views of competitive conduct have evolved with the
changing market conditions. If regulatory actions evolve with a changing view of
competitive conduct they risk reducing dynamic efficiency.
