Working Paper: CEPR ID: DP12866
Authors: Marc Bourreau; Yutec Sun; Frank Verboven
Abstract: 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 show that the incumbents' launch of the fighting brands can be rationalized only as a breakdown of tacit collusion. In the absence of entry the incumbents successfully colluded on restricting their product variety to avoid cannibalization; the new entry of the low-end competition made such semi-collusion more difficult 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; semicollusion; product variety; mobile telecommunications
JEL Codes: L13; L96
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Entry of Free Mobile (L96) | increased competition (L13) |
| increased competition (L13) | breakdown of tacit collusion among incumbents (D43) |
| breakdown of tacit collusion among incumbents (D43) | introduction of fighting brands (L66) |
| Entry of Free Mobile (L96) | introduction of fighting brands (L66) |
| Entry of Free Mobile (L96) | increased consumer surplus (D11) |