Tuesday, December 16, 2008
Posted by D. Daniel Sokol
Louis de Mesnard, University of Burgundy provides his thoughts On the French Mobile Phone Cartel.
ABSTRACT: France Telecom (FT), SFR and Bouygues Telecom (BT) have been fined by France's Conseil de la Concurrence (CC) for organizing a mobile phone cartel with stable market shares (one-half, one-third and one-sixth respectively) and for directly exchanging commercial information. While not contesting the legal decision, it is argued here that the economic reasoning is flawed. 1) As the CC made much of the firms' stable market shares, we have first followed this line of reasoning by considering that the market shares are quotas under uniform costs. Even if there is a general incentive to form a monopolistic cartel, BT was too small for it to be worth its while to join it; it is not necessary to exchange information directly to coordinate market shares and prices effectively, while stable uniform high prices may simply ensue from the fear of a price war. 2) We then considered that the non-uniform market shares are explained by the costs in Cournot competition which can be deduced from the observed market shares by assuming that the costs are kept the same when switching from Cournot competition to any form of cartel. We deduced that market shares cannot be other than stable and non-uniform; any monopoly is unlikely to come about, because FT has negative incentives to form a monopolistic cartel; no partial cartels of two operators are viable because at least one member would lose out; Cournot competition is the only arrangement that guarantees no losses to all operators.