The Impact of Competition on the Price of Wireless Communications Services

Abstract

Dynamic models of industrial organization predict that more competition would increase price if the magnitude of the dynamic efficiencies outweighed the static one. In this paper, I test whether this prediction holds in the wireless markets where the dynamic efficiencies might be significant. The empirical test relies on the change in the intensity of competition, which is introduced by the entry of a fourth wireless operator in France, and the merger between the third and the fourth wireless operators in Austria. Using a hedonic price model and a double-difference matching estimation, I find that the entry into the French market has raised the unit price of mobile data services; contrary to the merger in the Austrian market which lowers the unit price of mobile data. These results suggest that the magnitude of the dynamic efficiencies actually outweigh the static one in the wireless industry. Therefore, a merger from four to three wireless operators may raise both firms profit and consumer surplus.

Keywords: Dynamic Efficiency Effects, Ex-post Merger Evaluation, Hedonic price, Nearest-Neighbor Matching, Mobile Telecommunications.

JEL Classification: D43, L11, L13