Wednesday, June 4, 2008
Posted by D. Daniel Sokol
Johan Stennek, Research Institute of Industrial Economics (IFN), Centre for Economic Policy Research (CEPR) and Thomas Tangeraas, Research Institute of Industrial Economics (IFN) compare Competition vs. Regulation in Mobile Telecommunications.
ABSTRACT: This paper questions whether competition can replace sector-specific regulation of mobile telecommunications. We show that the monopolistic outcome prevails independently of market concentration when access prices are determined in bilateral negotiations. A light-handed regulatory policy can induce effective competition. Call prices are close to the marginal cost if the networks are sufficiently close substitutes. Neither demand nor cost information is required. A unique and symmetric call price equilibrium exists under symmetric access prices, provided that call demand is sufficiently inelastic. Existence encompasses the case of many networks and high network substitutability.