Customer Service Quality and Incomplete Information in Mobile Telecommunications: A Game Theoretical Approach to Consumer Protection

Abstract

There is growing evidence that low-quality customer service prevails in the mobile telecommunications industry. In this paper we provide theoretical support to this empirical observation by using simple game theoretical models where inefficient low-quality service levels are part of an equilibrium strategy for the firms. We also find that the inefficiency is due to a demand-side market failure generated by incomplete information, and that it does not necessarily vanish with competition or with repeated interaction. This is particularly important in terms of policy implications because it suggests that the inefficiency should be solved through regulation via consumer protection.

Keywords: mobile telecommunications, consumer protection, game theory, customer services, competition, oligopoly, market failure, experience goods, incomplete information

JEL Classification: D18, D43, D82, L15, L96