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

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  • Lommerud, Kjell Erik

    ()
    (University of Bergen, Department of Economics)

  • Sørgard, Lars

    ()
    (Dept. of Economics, Norwegian School of Economics and Business Administration)

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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Bibliographic Info

Paper provided by University of Bergen, Department of Economics in its series Working Papers in Economics with number 14/02.

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Length: 26 pages
Date of creation: 14 Jul 2002
Date of revision:
Handle: RePEc:hhs:bergec:2002_014

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Postal: Institutt for økonomi, Universitetet i Bergen, Postboks 7802, 5020 Bergen, Norway
Phone: (+47)55589200
Fax: (+47)55589210
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Web page: http://www.uib.no/econ/en
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Keywords: collusion; entry; access fee; telecommunication;

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References

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  1. 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.
  2. De Fraja, Gianni, 1999. "Regulation and access pricing with asymmetric information," European Economic Review, Elsevier, vol. 43(1), pages 109-134, January.
  3. Klemperer, Paul D, 1987. "Entry Deterrence in Markets with Consumer Switching Costs," Economic Journal, Royal Economic Society, vol. 97(388a), pages 99-117, Supplemen.
  4. Nilsson, Arvid, 1999. "Transparency and Competition," Working Paper Series in Economics and Finance 298, Stockholm School of Economics, revised 29 Nov 1999.
  5. Lommerud, Kjell Erik & Sorgard, Lars, 2001. "Trade Liberalization and Cartel Stability," Review of International Economics, Wiley Blackwell, vol. 9(2), pages 343-55, May.
  6. 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.
  7. Grossman, Gene M & Shapiro, Carl, 1984. "Informative Advertising with Differentiated Products," Review of Economic Studies, Wiley Blackwell, vol. 51(1), pages 63-81, January.
  8. 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.
  9. ALLEN, Beth & THISSE, Jacques, 1990. "Price equilibria in pure strategies for homogeneous oligopoly," CORE Discussion Papers 1990034, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  10. Klemperer, Paul, 1995. "Competition When Consumers Have Switching Costs: An Overview with Applications to Industrial Organization, Macroeconomics, and International Trade," Review of Economic Studies, Wiley Blackwell, vol. 62(4), pages 515-39, October.
  11. Christian Schultz, 2001. "Transparency and Tacit Collusion," CIE Discussion Papers 2001-04, University of Copenhagen. Department of Economics. Centre for Industrial Economics.
  12. Ruqu Wang & Quan Wen, 1998. "Strategic Invasion in Markets with Switching Costs," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 7(4), pages 521-549, December.
  13. 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.
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Cited by:
  1. Brekke, Kurt R. & Nuscheler, Robert & Straume, Odd Rune, 2007. "Gatekeeping in health care," Journal of Health Economics, Elsevier, vol. 26(1), pages 149-170, January.

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