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: www.cepr.org/pubs/dps/DP6073.asp.asp

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.