Introduction

In this chapter, we continue to explore entry in a segmented market. As in the previous chapter, we distinguish two types of consumers, for instance, residential and business customers, or urban and rural customers. This allows us to incorporate targeted entry in the models. For example, an entrant may wish to serve business customers but not residential customers, or alternatively, target segments in different ways (e.g. with and without network rollout).

We refer to situations in which an entrant singles out one segment as “partial entry.” Alternatively, an entrant may wish to become active in both segments while rolling out a customer access network for business customers but serving residential customers by using the incumbent's local connections. We call situations in which an entrant targets the two segments in different ways “mixed entry.”

We explore several types of partial entry and mixed entry. Partial entry raises regulatory concerns because the incumbent remains a monopolist in the segment where there is no entry. To protect consumers in the captive segment, retail price regulation is a necessity. Both partial and mixed entry tend to complicate regulation, because regulatory measures meant for one segment can have spillover effects to the other segment, as we have encountered in Chapter 7. We will see that the regulator can often circumvent such spillovers by allowing the incumbent to price discriminate across the segments. Moreover, situations of targeted entry are particularly relevant when discussing problems related to the provision of universal service.