Strategic Behaviour in Network Industries

Strategic Behaviour in Network Industries

A Multidisciplinary Approach

Ernst ten Heuvelhof, Martin de Jong, Mirjam Kars and Helen Stout

This in-depth book explains how institutional changes such as the privatization and liberalization of network industries, for example transport, energy or telecommunications, can frequently be disappointing. The expected benefits such as lower prices, innovation and better services fail to materialize, often because the number of competitors is low. The authors demonstrate how strategic actor behaviour of one or more of the firms involved can help explain these disappointing results.

Chapter 10: Analysis

Ernst ten Heuvelhof, Martin de Jong, Mirjam Kars and Helen Stout

Subjects: business and management, organisational behaviour, economics and finance, game theory, institutional economics, public sector economics


INTRODUCTION In the preceding chapters, we have given a detailed overview of many kinds of strategic behaviour as we found them in the case studies. In these case studies, we looked at various network-based sectors: electricity (Enron), telecommunication (UMTS and AT&T), IT (Microsoft) and aviation (open skies). In the process, we presented the developments in several continents (Europe and North America) and countries (including Italy, Austria, Germany, the Netherlands and the United States). In describing our empirical findings, we have focused on entries for and forms of strategic behaviour as we introduced them in Chapters 3 and 4. In this chapter, we will draw conclusions regarding strategic behaviour in network-based industries, based on our case descriptions. We will discuss what entries for strategic behaviour are used pre-eminently as a basis for strategic behaviour in network-based industries and what dominant patterns of strategic behaviour ensue from the characteristics of these network-based industries. In the chapter about open skies we saw, for example, that the European Union negotiators used occasional arguments by suggesting that the United States had de facto cabotage rights in the European Union. In our view, such a form of strategic behaviour may just as well occur in non-network-based sectors and is therefore not particularly characteristic of network-based industries. However, if we look at an example from the AT&T case study, where market entrants used the incumbent’s obligation to guarantee the utility character by focusing on profitable segments of the market (known as ‘cherry picking’), we can...

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