The Impact of Entry on Prices and Costs

18 Pages Posted: 18 Sep 2007

Date Written: September 2007

Abstract

In this article, we propose a very simple methodology to evaluate the impact on prices and costs of the entry of a firm in a market, and apply it to the entry of a third firm in the Portuguese mobile telephony industry. Using quarterly firm level data, we characterize the evolution of the firms' prices and costs. We argue that the more plausible explanation for the behavior of these variables is the competition hypothesis. The entry of the third firm forced the other two firms to reduce their prices. The decrease in their profit margins led the two firms to improve their internal efficiency. As a consequence, their costs fell.

Keywords: Entry, Competition, Mobile Telephony, Prices, Costs

JEL Classification: L13, L96

Suggested Citation

Abrantes-Metz, Rosa M. and Pereira, Pedro, The Impact of Entry on Prices and Costs (September 2007). Available at SSRN: https://ssrn.com/abstract=1013619 or http://dx.doi.org/10.2139/ssrn.1013619

Rosa M. Abrantes-Metz (Contact Author)

The Brattle Group ( email )

44 Brattle Street
3rd Floor
Cambridge, MA 02138-3736
United States
16462768698 (Phone)

Pedro Pereira

Autoridade da ConcorrĂȘncia ( email )

1050-138 Lisboa
Portugal

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