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Market entry and roll-out with product differentiation

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  • Tzavara, Dionisia

    (University of Surrey)

  • Paul Levine

    (University of Surrey, LBS and CEPR)

  • Neil Rickman

Abstract

This paper examines a general problem exemplified by post-auction (third generation---`3G') mobile telecommunications markets. When entering these (or any other) markets, firms must often decide on the degree of coverage (`roll-out') they wish to achieve. Prior investment must be sunk in order to achieve the desired (or mandated) coverage level. We study the private and social incentives of a would-be entrant into a market with horizontal product differentiation when choosing its level of roll-out. The endogenous extent of entry influences downstream retail prices; Bertrand or local monopoly pricing or a mixed strategy equilibrium may emerge. Importantly, entry may involve too much or too little roll-out from a social perspective, thus suggesting that regulatory intervention may be appropriate to achieve desired levels of competition in such settings.

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Bibliographic Info

Paper provided by Royal Economic Society in its series Royal Economic Society Annual Conference 2002 with number 176.

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Date of creation: 29 Aug 2002
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Handle: RePEc:ecj:ac2002:176

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  1. Mason, R. & Weeds, H., 2000. "Networks, Options and Preemption," The Warwick Economics Research Paper Series (TWERPS) 575, University of Warwick, Department of Economics.
  2. Valletti, Tommaso M & Hoernig, Steffen & Barros, Pedro P, 2002. "Universal Service and Entry: The Role of Uniform Pricing and Coverage Constraints," Journal of Regulatory Economics, Springer, vol. 21(2), pages 169-90, March.
  3. Armstrong, Mark, 1998. "Network Interconnection in Telecommunications," Economic Journal, Royal Economic Society, vol. 108(448), pages 545-64, May.
  4. Gans, Joshua S & Williams, Philip L, 1999. "Access Regulation and the Timing of Infrastructure Investment," The Economic Record, The Economic Society of Australia, vol. 75(229), pages 127-37, June.
  5. Dixit, Avinash, 1980. "The Role of Investment in Entry-Deterrence," Economic Journal, Royal Economic Society, vol. 90(357), pages 95-106, March.
  6. Armstrong, Mark, 2001. "The theory of access pricing and interconnection," MPRA Paper 15608, University Library of Munich, Germany.
  7. Michael Carter & Julian Wright, 1999. "Interconnection in Network Industries," Review of Industrial Organization, Springer, vol. 14(1), pages 1-25, February.
  8. H. Cremer & F. Gasmi & A. Grimaud & J. J. Laffont, 2001. "Universal Service: An economic perspective," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 72(1), pages 5-43, 03.
  9. Wilson, Robert, 1997. "Nonlinear Pricing," OUP Catalogue, Oxford University Press, number 9780195115826.
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