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Mergers in Emerging Markets with Network Externalities: The Case of Telecoms

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  • Mathias Dewatripont
  • Patrick Legros

Abstract

This paper develops a unifying framework to understand competition issues in networkindustries. It focuses on the telecom(munication) industry and takes two specific effectsof this industry into account. First, the telecom industry is in continuous evolution andalliances affect not only the current market power of the firms but also the evolution ofthe industry. Second, the production of services in the industry is evolving towards theprovision of integrated services in a "system" that benefits from strong "networkexternalities". The analysis suggests that the antitrust authorities should capture as wellsuch effects as the magnitude of the installed bases, the compatibility of the alliance’ssystem with other systems, the switching costs for customers and application writers,and the "credibility" of the alliance to offer the service. The developed frameworkbuilds on the existing models of networks and combines the different network effects. The relevance of the framework is shown for two important merger cases (WorldCom-MCI and MSG cases), involving respectively an existing market and an emerging one. ZUSAMMENFASSUNG - (Unternehmenszusammenschlüsse in entstehenden Märkten mit Netzexternalitäten: Das Beispiel der Telekommunikationsindustrie) In diesem Beitrag wird ein einheitlicher Bezugsrahmen zur Analyse des Wettbewerbs in Netzwerkindustrien entwickelt. Er zielt auf die Analyse der Telekommunikationsindustrie ab und berücksichtigt dabei spezielle Effekte dieser Industrie. Erstens ist die Telekommunikationsindustrie durch eine stetige Evolution gekennzeichnet und Allianzen zwischen den Unternehmen beeinflussen nicht nur die aktuelle Marktmacht der Unternehmen, sondern auch die Entwicklung der Industrie. Zweitens entwickelt sich die Produktion der Dienste in dieser Industrie immer stärker in Richtung auf das Angebot integrierter Dienste (Systemangebote), die Vorteile aus Netzexternalitäten nutzen. Die Analyse zeigt auch, daß die Wettbewerbsbehörden ebenfalls Merkmale wie die Anzahl der verfügbaren Anschlüsse, die Kompatibilität des Systems der Allianz mit anderen Systemen, die Wechselkosten der Kunden sowie die Glaubwürdigkeit der Dienstleistungsqualität der Allianz berücksichtigen sollten. Der entwickelte Bezugsrahmen stützt sich auf die vorhandenen Netzmodelle und kombiniert die unterschiedlichen Netzeffekte und -merkmale. Die Bedeutung des Ansatzes wird am Beispiel von zwei wichtigen Fusionsfällen aufgezeigt (WorldCom-MCI und MSG), bei denen es sich jeweils um einen existierenden und einen entstehenden Markt handelt.

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Bibliographic Info

Paper provided by Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG) in its series CIG Working Papers with number FS IV 00-23.

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Length: 22 pages
Date of creation: Dec 2000
Date of revision:
Handle: RePEc:wzb:wzebiv:fsiv00-23

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  1. Church, J. & Gandal, N., 1992. "Integration, Complementary Products and Variety," Papers 3-92, Tel Aviv.
  2. Farrell, Joseph & Saloner, Garth, 1992. "Converters, Compatibility, and the Control of Interfaces," Journal of Industrial Economics, Wiley Blackwell, vol. 40(1), pages 9-35, March.
  3. Michael L. Katz & Carl Shapiro, 1994. "Systems Competition and Network Effects," Journal of Economic Perspectives, American Economic Association, vol. 8(2), pages 93-115, Spring.
  4. Chou, Chien-fu & Shy, Oz, 1990. "Network effects without network externalities," International Journal of Industrial Organization, Elsevier, vol. 8(2), pages 259-270, June.
  5. Stanley M. Besen & Joseph Farrell, 1994. "Choosing How to Compete: Strategies and Tactics in Standardization," Journal of Economic Perspectives, American Economic Association, vol. 8(2), pages 117-131, Spring.
  6. Katz, Michael L & Shapiro, Carl, 1985. "Network Externalities, Competition, and Compatibility," American Economic Review, American Economic Association, vol. 75(3), pages 424-40, June.
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Cited by:
  1. Mathias Dewatripont & Victor Ginsburgh & Patrick Legros & Alexis Walckiers & Jean-Pierre Devroey & Marianne Dujardin & Françoise Vandooren & Pierre Dubois & Jérôme Foncel & Marc Ivaldi & Marie-Domi, 2006. "Study on the economic and technical evolution of the scientific publication markets in Europe," ULB Institutional Repository 2013/9545, ULB -- Universite Libre de Bruxelles.

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