Tuesday, January 24, 2017
Mikolaj Czajkowski (Faculty of Economic Sciences, University of Warsaw) and Maciej Sobolewski (Faculty of Economic Sciences, University of Warsaw) model the Strategic use of external benefits for entry deterrence: the case of a mobile telephony market.
ABSTRACT: Recent models of network competition demonstrate the incentives of incumbents to reduce receiver benefits in rival networks through excessive off-net pricing. Theoretical reasoning behind strategic use of call externalities assumes that receiving calls contributes to consumer utility. This paper tests this critical assumption with choice data elicited from users of mobile telephones. We find that receiver benefits are a significant driver of subscription choices and assess customer base stealing effect encountered by the late entrant. Our findings confirm that call externalities can be used to limit late entrants’ growth as has been observed in many European mobile telephony markets.