The creation of incentives for innovative activities in a market economy requires the expectation of monopoly profits. Industries like the telecommunications sector that are subject to regulation because of the problem of natural monopolies cannot realise these (temporary) monopoly profits induced by innovations. This leads to no or only small incentives for innovations in telecommunication networks. But if temporary monopoly profits are allowed, then even after the end of the protected monopoly period - at least in case of monopolistic bottlenecks in the area of telecommunication infrastructure- welfare enhancing competition will not take place as a result of the natural monopoly structure. To solve this dilemma an innovation-oriented regulation theory, that enhances the classic regulation theory by taking dynamic efficiency aspects into account, is needed.
The aim of this project is to shed light on the issues of which market structure provides the strongest incentive for innovations in telecommunication infrastructure and how the optimal regulation is characterized given the necessity for incentives for innovations towards the further development of modern telecommunication infrastructure is considered.
Modelling of incentives for innovation from a theoretical perspective and empirical analysis of the relation
Czernich, Nina, "Downstream market structure and the incentive for innovation in telecommunication infrastructure", ifo Working Paper No. 64, 2008
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