Switching Costs, Consumers' Heterogeneity and Price Discrimination in the Mobile Communications Industry
AbstractIn this paper we develop a formal model that captures some basic features of competition in the mobile communications service industry. In a model of oligopolistic competition with price discrimination and switching costs, we study the role of firms’ installed base of consumers in providing the incentives to offer contracts for a new class of consumers with a lower willingness to pay. The model predicts that there exists an inverse relationship between the share of the leader in the market of consumers with high willingness to pay and its share in the market of consumers with low willingness to pay. This implies that market shares converge. If firms collude in the introduction of new contracts, convergence is milder. This result is consistent with the empirical evidence related to the mobile communications industry in different European countries, where we observe a convergence in market shares driven by the superior ability of followers to acquire new customers, who typically have lower willingness to pay as compared with early adopters.
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Bibliographic InfoPaper provided by KITeS, Centre for Knowledge, Internationalization and Technology Studies, Universita' Bocconi, Milano, Italy in its series KITeS Working Papers with number 166.
Length: 20 pages
Date of creation: May 2005
Date of revision: May 2005
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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
- L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-06-27 (All new papers)
- NEP-BEC-2005-06-27 (Business Economics)
- NEP-COM-2005-06-27 (Industrial Competition)
- NEP-IND-2005-06-27 (Industrial Organization)
- NEP-MIC-2005-06-27 (Microeconomics)
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