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Entry in Telecommunication: Customer Loyalty, Price Sensitivity and Access Prices

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Author Info
Lommerud, Kjell Erik
Sørgard, Lars

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Abstract

The purpose of this article is to investigate the prospects for entry into an existing network in the telecommunication industry, and how public policy may promote a more competitive outcome. We apply a model that captures the fact that the incumbent has an installed base of loyal consumers, some consumers are price sensitive, and the entrant is charged an access fee for entering the network. We distinguish between classical (de novo) entry and reciprocal entry (incumbent entering the neighbouring market), and analyse how such public policy measures as (i) publication of prices by the authorities and (ii) lower access fees affect the competitive outcome. In the reciprocal entry model we find that lower access fees tend to discourage entry into a neighbouring market, while the publishing of prices has an ambiguous effect on entry.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3502.

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Date of creation: Aug 2002
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Handle: RePEc:cpr:ceprdp:3502

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Related research
Keywords: access fee; collusion; entry; telecommunication;

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Find related papers by JEL classification:
L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Christian Schultz, 2001. "Transparency and Tacit Collusion," CIE Discussion Papers 2001-04, University of Copenhagen. Department of Economics. Centre for Industrial Economics. [Downloadable!]
  2. Svend Albæk & Peter Møllgaard & Per Baltzer Overgaard, 1997. "Government-Assisted Oligopoly Coordination? A Concrete Case," CIE Discussion Papers 1997-03, University of Copenhagen. Department of Economics. Centre for Industrial Economics.
    Other versions:
  3. Klemperer, Paul, 1995. "Competition When Consumers Have Switching Costs: An Overview with Applications to Industrial Organization, Macroeconomics, and International Trade," Review of Economic Studies, Blackwell Publishing, vol. 62(4), pages 515-39, October. [Downloadable!] (restricted)
  4. Nilsson, Arvid, 1999. "Transparency and Competition," Working Paper Series in Economics and Finance 298, Stockholm School of Economics, revised 29 Nov 1999. [Downloadable!]
  5. Grossman, Gene M & Shapiro, Carl, 1984. "Informative Advertising with Differentiated Products," Review of Economic Studies, Blackwell Publishing, vol. 51(1), pages 63-81, January. [Downloadable!] (restricted)
  6. De Fraja, Gianni, 1999. "Regulation and access pricing with asymmetric information," European Economic Review, Elsevier, vol. 43(1), pages 109-134, January. [Downloadable!] (restricted)
    Other versions:
  7. Lommerud, Kjell Erik & Sorgard, Lars, 2001. "Trade Liberalization and Cartel Stability," Review of International Economics, Blackwell Publishing, vol. 9(2), pages 343-55, May. [Downloadable!] (restricted)
    Other versions:
  8. H. Peter Møllgaard & Per Baltzer Overgaard, 1999. "Market Transparency: A Mixed Blessing?," CIE Discussion Papers 1999-15, University of Copenhagen. Department of Economics. Centre for Industrial Economics, revised Feb 2000. [Downloadable!]
  9. Allen, Beth & Thisse, Jacques-Francois, 1992. "Price Equilibria in Pure Strategies for Homogeneous Oligopoly," Journal of Economics & Management Strategy, Blackwell Publishing, vol. 1(1), pages 63-81, Spring.
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  10. Ruqu Wang & Quan Wen, 1998. "Strategic Invasion in Markets with Switching Costs," Journal of Economics & Management Strategy, Blackwell Publishing, vol. 7(4), pages 521-549, December. [Downloadable!] (restricted)
  11. Fudenberg, Drew & Tirole, Jean, 1984. "The Fat-Cat Effect, the Puppy-Dog Ploy, and the Lean and Hungry Look," American Economic Review, American Economic Association, vol. 74(2), pages 361-66, May. [Downloadable!] (restricted)
  12. Schmalensee, Richard, 1983. "Advertising and Entry Deterrence: An Exploratory Model," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 636-53, August. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Kurt R. Brekke & Robert Nuscheler & Odd Rune Straume, 2005. "Gatekeeping in Health Care," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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