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The Impact of Entry on Prices and Costs

18 Pages Posted: 18 Sep 2007  

Rosa M. Abrantes-Metz

Global Economics Group, LLC; New York University - Leonard N. Stern School of Business - Department of Economics

Pedro Pereira

Autoridade da ConcorrĂȘncia

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)

Global Economics Group, LLC ( email )

22 Cortlandt Street
Suite 1600
New York, NY 10007
United States
(917) 499-4944 (Phone)

HOME PAGE: http://www.globaleconomicsgroup.com

New York University - Leonard N. Stern School of Business - Department of Economics ( email )

269 Mercer Street
New York, NY 10003
United States

Pedro Pereira

Autoridade da ConcorrĂȘncia ( email )

1050-138 Lisboa
Portugal

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