Working Paper: CEPR ID: DP16111
Authors: Jonathan Elliott; Georges V. Houngbonon; Marc Ivaldi; Paul Scott
Abstract: We develop a model of competition in prices and infrastructural investment among mobile network providers. Market shares and service quality (download speed) are simultaneously determined, for demand affects the network load just as delivered quality affects consumer demand. While consolidation typically has adverse impacts on consumer surplus, economies of scale (which we derive from physical principles) push in the otherdirection, and we find that consumer surplus is maximized at a moderate number of firms, and that the optimal number of firms is higher for lower income consumers. Our modeling framework allows us to quantify the marginal social value of allocating more spectrum to mobile telecommunications, finding it is roughly five times an individual firm’s willingness to pay for a marginal unit of spectrum.
Keywords: Mobile Telecommunications; Market Structure; Infrastructure; Scale Efficiency; Antitrust Policy; Endogenous Quality; Queuing
JEL Codes: D21; D22; L13; L40
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Number of firms (L20) | Consumer surplus (D11) |
| Number of firms (L20) | Quality of service (L15) |
| Number of firms (L20) | Prices (D49) |
| Consumer surplus (D11) | Optimal number of firms (D21) |
| Market structure changes (D49) | Equilibrium outcomes (D50) |
| Spectrum allocation (L96) | Marginal social value (D46) |
| Optimal number of firms (D21) | Lower-income consumers (D12) |
| Total surplus (D69) | Optimal structure (D40) |