Market Entry and Roll-Out with Product Differentiation

26 Pages Posted: 28 Mar 2002

See all articles by Paul Levine

Paul Levine

School of Economics, University of Surrey

Neil Rickman

University of Surrey - Department of Economics

Dionisia Tzavara

European University Institute - Robert Schuman Centre for Advanced Studies (RSCAS); University of Peloponnese

Date Written: February 2002

Abstract

This Paper examines a general problem exemplified by post-auction (third generation '3G') mobile telecommunications markets and by recent developments in the UK market for postal services. When entering these (or any other) markets, firms must often decide on the degree of coverage ('roll-out') they wish to achieve. Prior investment must be sunk in order to achieve the desired (or mandated) coverage level. We study the private and social incentives of a would-be entrant into a market with horizontal product differentiation when choosing its level of roll-out. The endogenous extent of entry influences downstream retail prices; Bertrand or local monopoly pricing or a mixed strategy equilibrium may emerge. Importantly, entry may involve too much or too little roll-out from a social perspective, thus suggesting that regulatory intervention may be appropriate to achieve desired levels of competition in such settings.

Keywords: Rollout, entry, regulation, telecommunications

JEL Classification: L10, L50

Suggested Citation

Levine, Paul L. and Rickman, Neil and Tzavara, Dionisia, Market Entry and Roll-Out with Product Differentiation (February 2002). CEPR Discussion Paper No. 3237. Available at SSRN: https://ssrn.com/abstract=305521

Paul L. Levine (Contact Author)

School of Economics, University of Surrey ( email )

Guildford
Surrey GU2 7XH
United Kingdom
+44 1483 259 380 Ext. 2773 (Phone)
+44 1483 259 548 (Fax)

Neil Rickman

University of Surrey - Department of Economics ( email )

Guildford
Surrey GU2 7XH
United Kingdom
+44 1483 689 923 (Phone)
+44 1483 689 548 (Fax)

Dionisia Tzavara

European University Institute - Robert Schuman Centre for Advanced Studies (RSCAS) ( email )

Villa La Fonte, via delle Fontanelle 18
50016 San Domenico di Fiesole
Florence, Florence 50014
Italy

University of Peloponnese ( email )

Tripolis, 22100
Greece

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