Vertical integration in the telecommunication market

In this paper, the policy issues of the vertical integration in the telecommunication market are discussed in the economic standpoint. A simple but robust game model about the vertical integration is developed to analyze the relationship between telecommunication common carriers and service providers. We also consider network externality on demand function, which is one of the essential characteristics of telecommunication market. The Nash equilibrium prices and the profits under both cases of vertical integrated and non-integrated markets are derived, and the welfare implications of the vertical integration are discussed. One of the significant result obtained from this study is that consumers are always better off under the vertical integration.