Information Technology Reference
In-Depth Information
Chapter 2
Strategic Interaction under
Asymmetric Regulation:
The Case of New Zealand
Bronwyn Howell
New Zealand Institute for the Study of Competition and Regulation & Victoria University of
Wellington, New Zealand
ABSTRACT
Regulation binds incumbent firms to a different set of obligations from their entrant-competitors, thereby
creating an asymmetric set of options from which the firms may select the strategies under which they
will interact. Whilst most regulatory obligations are specified in law, some take the form of contractual
agreements. New Zealand's 'Kiwi Share' obligations bind the telecommunications market incumbent to
a set of retail tariff structures and levels that have both restricted its choices and opened up a range of
new strategic opportunities for its rivals that have had a significant effect upon the development of the
New Zealand industry. This paper examines the specific consequences of the asymmetric tariff obliga-
tions and ensuing strategic interaction amongst sector participants on sector development - namely the
effect of universal service retail prices and the allocation of the ensuing costs in determining the ongo-
ing regulatory agenda; the role of a 'free local calling' obligation on the evolution of New Zealand's
broadband market; and the consequent application of further asymmetric legislative obligations on the
incumbent to address apparent 'problems' for which the asymmetric tariffs and rivals' strategic choices
provide more credible explanations than the incumbent's exertion of its dominant position.
INTRODUCTION
In the application of competition law and industry-
specific regulation, the obligations upon dominant
firms typically differ from those imposed on firms
which do not have significant market power.
Asymmetric legislative and regulatory obliga-
tions undoubtedly influence the strategic actions
of the firms concerned and other participants in
the markets in which they trade (e.g. Hausman
(2002), with respect to the broadband market
All business sagacity reduces itself in the last
analysis to a judicious use of sabotage.
- Thorstein Veblen
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