Author(s)
Steffen Hoernig
Source
NET Institute Working Paper #08-38, 2008
Summary
This paper discusses two dynamic models of entry in mobile telephony, with and without strategic pricing.
Policy Relevance
This paper relates to an issue that is hotly debated between mobile telephony operators and national regulatory agencies: whether late entrants will be able to reach market shares comparable to those of previous entrants.
Main Points
- This paper shows that the common belief that tariff-mediated network effects are always to the detriment of the entrant is incorrect.
- These network effects matter for long-run market shares only if there are clients locked-in with the incumbent at the entry date.
- On the other hand, (small) tariff-mediated network effects in the presence of clients locked-in with the incumbent imply that the long-run difference in subscribers is smaller than the initial number of locked-in clients, i.e. the entrant can partially catch up.
- This paper also shows that asymmetric termination rates, be it mobile-to-mobile or fixed-to mobile, are to the advantages of the network with the higher rates, both in terms of market share and profits.
