Market Concentration and Incentives to Discriminate Against Rivals in Network Industries

for their advice and Ed Lowery and Link Hoewing for their input on telecommunications industry dynamics. All errors and omissions are my own. Abstract I examine the effects of market concentration on interconnection in network industries. Using Cournot interactions, each network chooses quantity, quality for communications within the provider's own network, which I call internal quality, and quality for communications between the provider's network and other networks, which I call external quality. Larger networks choose higher internal quality than do smaller networks. All networks choose lower external quality when connecting with smaller networks. Large networks and small networks choose identical external quality when interconnecting with each other. Lastly, incumbent providers are willing to raise rivals' per customer costs, but never interconnection costs.