Working Paper: CEPR ID: DP4069
Authors: Eugenio J. Miravete; Larshendrik Røller
Abstract: This Paper estimates an equilibrium oligopoly model of horizontal product differentiation where firms compete in non-linear tariffs. The estimation explicitly incorporates the information contained in the shape of the tariffs offered by competing duopolists to recover the structural parameters associated to the distribution of consumers? unobserved heterogeneity. The model identifies the determinants of the non-uniform equilibrium markups charged to consumers who make different usage of cellular telephone services. Estimates are then used to evaluate the welfare effects of competition, a reduction of the delay in awarding the second cellular license, and alternative linear and non-linear pricing strategies. Our policy evaluations reveal that a single two-part tariff achieves 63% of the potential welfare gains and 94% of the profits of a more complex fully nonlinear tariff.
Keywords: Common Agency; Competitive Nonlinear Pricing; Estimation of Equilibrium Oligopoly Models
JEL Codes: D43; D82; L96
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| competitive nonlinear pricing (D49) | consumer welfare (D69) |
| competitive nonlinear pricing (D49) | firm profits (L21) |
| introduction of competition (L13) | reduction in marginal tariffs (F12) |
| reduction in marginal tariffs (F12) | increase in consumer participation (D16) |
| reduction in marginal tariffs (F12) | increase in overall welfare (D69) |
| single two-part tariff (L90) | potential welfare gains (D69) |
| single two-part tariff (L90) | profits of fully nonlinear tariff (L97) |
| entry of a nonwireline firm (L96) | efficiency gains for incumbent wireline firm (L96) |
| entry of a nonwireline firm (L96) | reductions in monthly fees (D49) |