DP6073 Competition vs. Regulation in Mobile Telecommunications

Author(s): Johan Stennek, Thomas P. Tangerås
Publication Date: February 2007
Keyword(s): access price competition, entry, network competition, network substitutability, regulation, two-way access
JEL(s): L51, L96
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=6073

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.