Economic Analysis of Mobile Handset Subsidy Competition: Profitable Subsidy Competition and Regulatory Implications
Posted: 7 Oct 2013
Date Written: September 30, 2013
This paper examines the economic effects and outcome under mobile phone subsidy competition by a simple Hotelling location model. The results show that i) MNOs still can enjoy a positive profit even with severe subsidy competition unless MNO-level differentiation goes away, ii) the size of profit is much closer to that of pure price competition as a higher transaction cost is associated with retailers, and iii) a successful clearing of transaction cost can induce the MNOs' voluntary transition to pure price competition.
Keywords: Mobile phone subsidy, Subsidy competition, Pure price competition
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