Competition vs. Regulation in Mobile Telecommunications

Abstract

This paper questions whether competition can replace sector-specific regulation of mobile telecommunications. We show that the monopolistic outcome may prevail independently of market concentration when access prices are determined in bilateral negotiations. A lighthanded 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.

Keywords: network competition, two-way access, mobile termination

JEL Classification: L12, L14, L51, L96