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Thursday, April 16, 2009

More Firms, More Competition: Is it Certain? The Case of the Fourth Operator in France's Mobile Telephony

Posted by D. Daniel Sokol

Louis de Mesnard, University of Burgundy asks, More Firms, More Competition: Is it Certain? The Case of the Fourth Operator in France's Mobile Telephony.

ABSTRACT: The French government plans to authorize a fourth operator to enter the country’s mobile phone market alongside Orange, SFR and Bouygues Telecom. While the French government sees this as a way to foster competition, this paper predicts the move will prove a disappointment. Three points are examined. 1) If the operators are in four-way Cournot competition, minimizing the total profit fails to maximize the consumer surplus and the total surplus; the most realistic price fall is only of 1.11% compared to three-way Cournot competition. 2) The overall incentives for forming a monopoly are positive; when the fourth operator’s costs are high, there will be no move from a three-way Cournot competition to a monopolistic cartel of four because Orange experiences negative incentives; there will be no move from a monopolistic cartel of three to a monopolistic cartel of four. 3) Moving from fourway Cournot competition to a partial cartel formed by Orange, SFR and Bouygues Telecom is unlikely; when the fourth operator enters a market dominated by the monopolistic cartel of Orange, SFR and Bouygues Telecom, these three operators will not continue forming a cartel; excluding the fourth operator from the monopolistic cartel of four is also losing; the cartel formed by SFR, Bouygues Telecom and the fourth operator is never credible either.

http://lawprofessors.typepad.com/antitrustprof_blog/2009/04/more-firms-more-competition-is-it-certain-the-case-of-the-fourth-operator-in-frances-mobile-telephon.html

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