The access regulation and investment in quality

This paper investigates the impact of access price regulation on the quality of service provided in regions with different demand structures. We investigate the incumbent firm's incentives for quality investment when there is a Bertrand competition between the entrant and the incumbent and in the case of tacit collusion where the entrant and incumbent are monopolies in different regions. We show that the optimal quality decision depends on the responsiveness of demand to quality, i.e., the quality elasticity of demand, as well as the price elasticity of demand in a specific region. Additionally, the effects of population size on the optimal price quality pair are shaped by the relationship between the size of population and the price and quality elasticities in that region.