Network industries are traditionally strongly influenced by sectorspecific regulation, of which universal service obligations (USO) play a particularly important role. In these sectors, USO impact market forces by shaping competition asymmetrically. They also interfere with other regulations, such as intellectual property laws, which are of increasing importance in these industries. This interaction has become of interest in the postal sector due to its recent convergence with telecommunications and the emergence of innovative services at the interface of the two sectors. In free markets, the design of intellectual property right trades off investment incentives against market distortions due to (temporary) exclusive rights. USO distort competition and thereby affect the optimal solution of this trade-off. This paper discusses various aspects of the influence of patents on universal service provision. It also illustrates these effects by means of a simple model of an innovation race under asymmetric regulation, and with forced licensing to derive regulatory and policy implications to safeguard a cost-effective and consumer-oriented provision of universal services.
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