Market Entry, Fighting Brands and Tacit Collusion: The Case of the French Mobile Telecommunications Market
68 Pages Posted: 30 Apr 2018 Last revised: 3 Feb 2021
Date Written: January 30, 2021
We study a major new entry in the French mobile telecommunications market, followed by the introduction of fighting brands by the three incumbent firms. Using an empirical oligopoly model with differentiated products, we find that the incumbents' fighting brand strategies cannot be rationalized as unilateral best responses to new entry in a static game. Instead, we show how the incumbents' strategies can be rationalized as a breakdown of tacit collusion: in the absence of entry, the incumbents could successfully collude on restricting their product variety to avoid cannibalization; the new entry of the low-end competition made such semi-collusion harder to sustain because of increased business stealing incentives. Consumers gained considerably from the added variety of the new entrant and the fighting brands, and to a lesser extent, from the incumbents' price response to the entry.
Keywords: entry, fighting brand, semi-collusion, product variety, mobile telecommunications
JEL Classification: L13, L96
Suggested Citation: Suggested Citation